How to Fund a New Start-up Business
We’re a dedicated team of accountants, tax consultants, payroll managers and business advisors who support businesses of all shapes and sizes. As well as helping sole traders, limited companies, partnerships, trusts and not-for-profit organisations, we also pride ourselves on helping entrepreneurs to launch a start-up and equip it for sustainable growth.
Due to capital being imperative to the successful launch of a start-up business, in this guide we’re looking at the different methods of funding a new venture.
Why launch a start-up business?
When you have a great idea, visualise a new line of products or notice a gap in the market, you may find yourself considering whether or not to create a start-up business. This is a very exciting time but it comes with countless barriers and challenges, which can sometimes seem overwhelming. For instance, all of the following factors call for in-depth analysis and planning:
Product development or service refinement, which can require ongoing research and development
Creating a detailed business plan
Deciding the organisational structure and who will be involved
Formulating a marketing and sales strategy
Hiring the right people, either in-house or on a contractor/freelance basis
Setting time and money aside for developing a brand presence, including a website, social media channels and other promotional activity
Deciding what will be required in terms of space for offices and storage
Working out how much everything will cost, both today and on a long-term basis
All of the above requires a lot of thought and a fair bit of maths, as launching a start-up business without the funds to cover your costs will only end in tragedy. Depending on the nature of your new business, these costs could be in the hundreds, thousands or tens of thousands, which is why exploring your funding options well in advance is crucial.
It all starts with lots of research
When developing a new business, you need to begin by working out how everything will be financed. Unless you happen to have a large sum sitting in your personal account and you’re happy to use it, you have to decide where the money for the start-up costs will actually come from.
In order to do this, you’ll need a detailed business plan. Whilst it’s tempting to save money by doing this entirely yourself, we strongly recommend hiring an accountant or business advisor to support the process, as it will not only speed things up and ensure that no detail is omitted, but also save you money in the long run through in-depth financial planning.
Your business plan will include many things, such as a company description, who your target market is, how you plan to engage their interest, an organisation and management structure, and of course estimates and projections regarding costs and sales. Expenses, a sales forecast and anticipated profits will all be included in this, which can be very hard to estimate without an experienced finance expert on board to help you.
Ideally, you’re looking for someone who can be an accountant, business advisor, tax consultant and coach or mentor all in one – luckily for entrepreneurs in the UK, TreyBridge provides all of these under one roof.
Is bootstrapping the right option?
The term “bootstrapping” refers to when entrepreneurs use their own money to fund the launch of a new business. This could either be savings that you’ve put aside, a personal credit card or loan, or a combination of both approaches. Bootstrapping is a very common way of funding a start-up business, although it isn’t the only option available.
Quick note: Bootstrapping can also include using your own resources to start a new business, such as a home office, personal computer equipment, a garage for storing products, and so on.
Borrowing from people close to you
Another popular method of funding a new business is to borrow money from people who are close to you, such as family members and friends. The upside of this is that sometimes these people will be willing to lend money without any interest being charged, or they could even receive a stake in the company and potentially have a say in any business decisions.
However, it’s very important to bear in mind that borrowing from friends and family members needs to be treated with respect and transparency. Whether they expect their money to be paid back in regular instalments or a lump sum, it’s your duty to ensure that this happens on time. If you run into difficulties, you should let them know right away that there may be a delay in paying them back.
Though it’s not a nice image, there’s also the possibility that your business won’t be the great success you want it to be. This would most likely mean not being able to pay back your relatives, or at least not as quickly as agreed, so it’s imperative that an in-depth discussion takes place beforehand to keep everyone on the same page.
Take on an angel investor
If you’ve ever watched Dragons’ Den, you’ll be aware of how powerful angel investing can be. An angel investor is an establish businessperson who provides financial backing to your new business because they believe it has strong potential to succeed. The angel investor will invest a certain amount of money in exchange for a number of shares, such as investing £50,000 in exchange for a 10% stake in the business.
Usually an angel investor will also want to be involved in the creation and development of your business, rather than being a silent investor. This comes with pros and cons – whilst their expertise, advice, resources and contacts will prove invaluable, it can be hard for some entrepreneurs to relinquish aspects of how their concept becomes a reality. For instance, it may be that you don’t have full creative control and some of your business goals may need to change to fit the preferences of your angel investor.
Business loans and credit cards
The forming of a new start-up business comes with multiple costs. If you sell physical products, you need money to cover your inventory, storage, packaging, postage and manpower. If you deliver services, you will probably require a small team and commercial premises, in which case recruitment, rent, office furniture and IT equipment all come with significant costs. Then of course there’s marketing and PR to ensure people actually find out about your new business.
When you take into account all of these costs (and let’s face it, there will probably be additional resources that need purchasing too), it all adds up to a pretty penny. That’s why many start-up entrepreneurs apply for business loans from their banks or other providers of financial products, as it’s a good way to gain instant access to a large pot of cash. But that’s only if your application is successful – click here to find out about how we can support you with funding bids and grant applications.
They key factor to remember with a business loan is that it not only needs paying back in regular instalments but there will also be interest added. It may even be a secured loan that’s linked to an asset you own, such as a property or vehicle – if it turns out you can’t pay back the loan, the lender can then take your asset in lieu of cash payments.
As a result, your application has to be very strong and should never be sent off without thorough consideration of whether or not you can actually afford to take it out. The same goes for commercial credit cards, as only paying back the minimum amount each month will result in a lot of interest being added over time.
Business grants are similar to loans in that they usually offer a lump sum for a particular purpose. The key difference is that they don’t need to be paid back, making them a very popular option for all kinds of businesses. This popularity comes with a downside, as the business grant landscape is extremely competitive and your funding bid needs to be exceptional in order to make the cut (remember that we can help you write one, so get in touch for more information).
There are countless grants available, which are offered by everything from local authorities and independent Local Enterprise Partnerships to banks, funding organisations, business accelerators and of course the Government. The nature of these business grants also varies enormously and they will usually focus on a particular area of operations.
Here are a few categories of business grants that are available from numerous sources:
Arts, Culture & Heritage grants
Business Development grants
Children and Young People grants
Community Development grants
Cost of Living Crisis grants
Education and Training grants
Energy, Environment and Transport grants
Health, Justice and Welfare grants
Innovation, Research and Development grants
Land Buildings and Equipment grants
Neighbourhood Renewal and Regeneration grants
Rural Development grants
Schools and Colleges grants
Sports and Leisure grants
Technology and IT grants
Have you considered crowdfunding?
Crowdfunding has become much more accessible over recent years and offers a unique way to fund a new business. The process involves raising money online through an official crowdfunding platform, such as Kickstarter, GoFundMe, Indiegogo, CircleUp, LendingClub, CrowdCube, Patreon and many more. The beauty of crowdfunding is that anyone can get involved, no matter who they are or where they’re based in the world. Here’s how it works:
Create a story that sparks interest and excites people
Include strong reasons why people should financially support your business
Explain how the money will be used and what it will help your start-up to achieve
Make it as visual as possible through photography and video content
Usually a crowdfunding campaign will offer perks or bonuses to people who pledge certain amounts of money, which could be a product, a service or something else
Encourage people to spread the word online and through word of mouth
Regularly post updates to the crowdfunding page and thank people for supporting you
If you reach or exceed your target and the crowdfunding goes head, make sure to allocate enough time to fulfil all of your supporters’ rewards
Dedicated support for start-up businesses
As well as supporting you with all of the above, TreyBridge can also manage the nitty-gritty tasks to ensure that your start-up business can go ahead without any snags. Here are a few examples of what we offer:
Deciding what type of business you should be, such as a sole trader, partnership or a limited company. We’ll advise on the best solution to fit your mission and goals.
We register you with HMRC and, if applicable, Companies House.
The type of software used for your accounts makes a significant difference to your daily operations. We’ll talk you through the most relevant options, then either manage it for you or show you how to do it yourself.
You may have an awesome business name in mind, but it’s crucial that checks are carried out first so that it’s unique, stands out from the crowd and doesn’t conflict with any trademarks. We can do this for you, saving you time and stress.
Launch a new start-up business today!
If you have an idea for a new business and would like advice and support that will help to turn it from a dream into reality, call our Northern office on 01482 235575, our London office on 0207 885 0605 or fill in the contact form below.
Tagged as: Small Business Help
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