Starting
up in business
Raising
Finance
Who
Needs Finance?
Every
business from its commencement and through its development
and growth will need finance.
But what type of finance is best suited to the development
of your business, and who should you approach for funding?
We provide guidance below on types of finance available and
outline the planning required before approaching any lending
institution.
Planning
for Growth
Is
finance required?
Finance is very often necessary but consider what it will
entail. Additional funding requires a commitment in terms
of capital and interest payments. Embarking on this course
of action must therefore be planned carefully.
The business must be capable of sustaining any additional
commitment to growth or expansion, and consideration will
need to be given to effects on manpower, materials and space.
Tapping existing resources
Before seeking outside finance, a business must consider whether
it could improve its working capital from within.
Particular attention should be given to stock and debtors
to ensure that both are kept to a minimum. Consider how long
it takes to bill customers and collect debts and look at ways
to reduce this time.
If there are periods of time when surpluses of cash arise,
review your affairs to try and ensure these are being used
to generate income by investing on temporary short term deposit.
We can advise you on all these matters.
Business plan
Assuming external funding is necessary, planning is essential
in achieving success. A well drawn up business plan not only
crystallises in your own mind the nature of the project and
the timing of any required funding, but is vital to any lending
institution. They are unlikely to provide any assistance without
a properly drawn up business plan.
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The
plan will include details of:
- the
objectives and aims of the business
- the
purpose of the required funding
- the
business ownership and history
- management
and responsibilities
- products
and market share
- sales
plan and strategy the financial position of the business
with detailed cash flow forecasts and past accounts.
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Types
of Finance
General
Finance is available in many forms, but it is important to
make sure that it is right for your business. Onerous terms
and inflexibility can often hinder a growing business.
The more obvious sources of finance include bank overdrafts
and medium to long term loans and mortgages, but rates of
interest can vary considerably. Therefore we advise you to
consult with us before making your final decision.
Specific
Specific methods of finance are available for acquiring assets
or releasing cash from debtors. Carefully consider the options
available which include:
- leasing
assets
- hire
purchase
- outright
purchase
- debt
factoring
- invoice
discounting.
Each
method of funding has advantages and disadvantages including
implications for tax purposes.
Other
Other means of finance may be available for your business
from government sources, through the issue of shares or even
your own pension scheme.
Government assistance can be in the form of grants, concessionary
loans or loan guarantees, particularly if your business is
in the manufacturing sector or creates new jobs. Other grants
may be available on a regional or local level.
Raising finance by issuing shares may be another option to
consider.
Security
Whatever form of finance is offered, the lender will always
require some form of security. However the level of security
sought may vary - beware the lender asking for unreasonable
guarantees.
Fixed and floating charges
Most bank loans and overdrafts are secured by way of a fixed
charge over land and buildings with floating charges over
other assets of the company such as stock and debtors.
Personal guarantees
For some businesses little security may be available because
of insufficient assets. Consequently the security will be
given in the form of personal guarantees.
Take extreme care before signing these guarantees as they
can be difficult to amend at a later stage and many have suffered
as a consequence.
In particular, personal guarantees are best if they are limited
by time or amount. Unlimited guarantees are the most dangerous.
General
It may be possible to use other assets as collateral such
as life insurance policies or by taking a second mortgage
over your home.
Whatever the means of security pledged, it should be carefully
considered and advice sought.
How
We Can Help
The
means by which finance is obtained will vary enormously according
to:
- the
amounts required
- the
nature of the business
- the
risk exposure to the lender
- the
period for which finance is required.
Accordingly
whilst some generalisations apply, individual circumstances
require specific consideration. Time invested in formulating
a funding strategy, whilst not guaranteeing success, will
provide a structure to guide the growing business.
Our experience and contacts can enable you to achieve the
means to help your business grow.
We would welcome the opportunity to assist you in formulating
a business plan and obtaining any necessary finance.
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of page
For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
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C o m p l e t
e 
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to carry on audit work for a range of investment business
activities by the Institute of Chartered Accountants in England
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