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Seeking Finance? Get creative!

The current government is convinced that starting up a business during the end of an economic recession is one of the best times to start a new business and help boost the economy.

And in some ways, they are absolutely right!

Anyone starting up right now will probably benefit from cheaper overheads and resources, whether it be their premises, skilled labour or competitive prices on other services they need to get up and running.

This year alone, half a million new companies were formed in the UK. According to Companies House statistics, this is an 11% increase from last year.

But starting up a business vs. actually making it a commercial success are two very different things. And no matter what business you run, at some point in order to really kick start or take your business to the next level you will need some form of investment capital to truly make it successful. We need to spend money in order to make money.

It has to be said, that the ratio of material out there on how to start your own business vs. how to obtain investment capital is disproportionate. I’m sure most SYB readers would agree that there is plenty of material available on how to build a ‘business plan’, but not enough on how to sensibly find the right form of investment capital for your type of business.

Below are some finance options that I always keep at the back of my mind…

Early Stages in your Business:

1. Self-Finance (Bootstrapping)
Depending on the size of your business, are you able to dig deep either in some of your savings or overdraft facilities to tide you over? You may also want to consider putting some of that investment on the credit card for a limited time. Take the founders of Google, Larry and Sergey. For the first two years of setting up Google they financed their efforts almost entirely through the use of credit cards. Clearly you need to be sensible with this approach but the upside is that you maintain control and full equity of your business.Personally, I favour self-finance when starting out because it forces you to be disciplined with all costs, which is easy to monitor with the help of financial management systems. You really do exhaust all options first before going ahead and spending any of your own money.

2. Family & Friends
Sounds obvious but they should be the first people you call on before a bank or any other third party. They have your best interests at heart and if their money is involved, they will want to support you in your success journey i.e. perhaps not charge you market rate interest or give you flexible payback terms. Take care with informal arrangements with family and friends and draft up even a basic agreement between yourselves to avoid any potential conflict or misunderstandings later on.

3. Grants
These are hard to find as they tend to be industry specific and there is a lot of competition for them, but they do exist. In my experience you can’t solely rely on obtaining a grant and it should be balanced with other forms of accessible capital. A useful site for understanding more about what is available to you is: www.ukbusinessgrants.org

4. Bank Loans
Traditionally, this route has been a long shot, as banks would only consider companies that have been in business already for a few years. Thanks to the coalition government, there is a greater emphasis on support for start up enterprises to help boost the economy. As a result, banking institutions are showing greater flexibility. Check out some of the packages that Barclays Bank has available together with some of their business start-up case studies.

Mature Stages in your Business:

5. Customers and Suppliers
Depending on what industry you are in, you may be able to ask your customers to support you with the development of a new product or service. If you have a good relationship with established clients and have consistently delivered for them, they should consider your proposal.

When it comes to suppliers, again depending on the strength of your relationship and results to date, you can always try to renegotiate flexible payment terms perhaps by asking them to hold on to stock and inventory a bit longer.

6. Angel Investors
The term “angel” originally comes from the entertainment industry, where it was used to describe wealthy individuals who provided money for theatrical productions in Broadway. Towards the late 70s it then was also used to describe how entrepreneurs raised seed capital. This capital tends to come from high net-worth individuals who want to achieve greater return on their capital or want to diversify their current investment portfolio. They usually invest anywhere from £10,000 to £2 million and will typically get involved in some capacity in your business. This is great news, as they usually bring enormous amount of expertise and experience. There are a lot of angel investors out there but it requires research and targeted networking to establish the right relationship. As angel investment has become more sophisticated, they tend to be more attracted to companies that are at a later stage in their lifecycle so make sure that your 3-year business plan is bulletproof.

Investment (in any form) still remains one of the biggest challenges for start-ups.

The key is to try to minimise your costs as much as you can so that when you are truly ready for a cash injection it is being used on the right things to drive growth. At all times, before getting into any unnecessary debt, make sure to put your creative hat on and exhaust all the possible finance options available to you first. If you are not good at doing this then speak to people who are. Their advice may cost you some of your precious funds, but it could mean everything to your business long term.

For more information visit:
www.palomavivanco.com

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