You don’t necessarily have to have a fortune to set up a business, but you do need some money. While many businesses start up on just a few thousand pounds in capital, many other companies struggle because they do not have enough cash to keep the business going through the tough early stages. Ideally you may think that your profits will fund growth, which will in turn result in more profit.
But there’s a problem with this attitude; at the beginning, you have a lot of expenses to pay before you see any of the profit – if you are even making any. Many companies need to source capital to fund a start-up enterprise. If you need to access funds, draw up a detailed plan for approaching sources and for securing the amount you need. Here’s what you need to consider.
Decide What Form of Financing You Need
Any money is good money, right? Wrong. Each kind of financing has different characteristics which makes it suitable for some people and not for others. One factor is the amount of control you are giving up. Venture capitalists will want managerial input. Angel investors may be completely involved or not involved at all. Banks will want no involvement whatsoever aside from being paid on time. Getting a loan from a family member may be simple or problematic depending on your personality and your family ties.
Figure Out How Much Money You Need
It is probably a given, but you do need to focus on exactly how much money you want as this will affect where you can get it from. Get this set out as soon as you can so that you can focus your plan where it matters. For example, you won’t be able to get a few thousand pounds from a venture capital investor. But you will be able to borrow a small sum from a specialist financer which focuses on small businesses. Once you have the sum set you can look at the guidelines from sources of funds to see where you match.
Be Realistic
When you are looking at your final figures, don’t make the mistake of underestimating how much money you are going to need. The financial section of a business plan must be accurate and honest. Demonstrate that your plans for financial growth are realistic by breaking the figures down into separate components, planning how each component will grow and contribute to future earnings and profit. Start with a sales forecast and project future sales over the course of three years. Create a budget for expenses that includes everything you will need to make these future sales projections a reality. Make a differentiation between fixed costs and costs that can be adjusted and may fluctuate – the difference between rent and marketing costs, for example. Develop a cash flow statement and make plans for dealing with assets and liabilities.
