Business Planning

Are you a small business owner?

Funding a business isn’t easy, but if you have a good business plan and as much knowledge as possible, then you should soon be an entrepreneur in no time.

We hope our guide proves useful and please make sure to check out the other articles on our Knowledge Hub for all the best tips and tricks in the world of business.

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Before you look into funding options, work out how much money you will need to start up. Research what steps you will need to take to start your business.

There is lots of information online to help you with this. There are several factors to this, as costs can vary dependent on the type of business you want to start. Some businesses may need very little money, whilst others may need a lot, before they can be founded. Do lots of research and make note of the costs you will incur. It’s a great idea to do the maths in advance, as it will put you in a better position in the future and when deciding on the right funding. Here are some things to think about:

• Registration costs

• Rent/Premises

• Insurance and Legal (licences, certifications etc)

• Transport/Vehicles

• Marketing /Advertising

• Equipment

• Supplier and stock

There is no one size fits all approach to funding a new business. You need to think about what is most suitable for you. By doing planning, you will know what your business needs.

Types of Funding

Self-Funding

The easiest way to fund your new business is with your own money. If you have any savings, then this could be a great option. However, it’s not risk-free, as if your business fails, then you will lose a chunk of your savings. But, by investing your own money, you can test the waters with your new business and ensure it is a viable business venture. It means you can launch the business without owing anyone. If your small business is already established, then you may be able to secure larger amounts of funding in the future from loans and grants. This option will be limited by the amount of savings you have available, which could hold you back and may slow down the growth of your business. However, it can act as a stepping stone to launch your company. Don’t be tempted to sell vital assets to raise funds, know your limits, and only spend what you can afford. It is a good idea to move the amount you want to invest into a dedicated bank account, then there will be a clear boundary between your personal and business funds.

Loans

Loans are the most common way for businesses to get funding. You are likely to get money quickly and usually without a limit or cap on the amount, as long as you are viewed as low risk. To be a low risk, you need to prove you are someone who can afford the monthly repayments. As a new business, you may seem riskier than someone with an established business, but if you can provide them with a detailed business plan, they will be more likely to accept you. A clear financial forecast can go a long way when securing a loan. Of course, not all loans are the same and you need to work out which will work best for you. Research online so you can see the differences between the types of loans on offer.

A good choice for a new business would be an unsecured business loan, as these are an excellent source of funding for a new company that lacks assets. Unsecured business loans offer your business flexible funding options and are ideal for those who cannot risk losing valuable equipment or property.

Grants

Grants are perfect for a new business, because they do not require repayment. However, there are advantages and disadvantages. A big advantage is that it’s a sum of ‘free money’ that is non-repayable. A major con is that they can be difficult to come by, in fact, they are actually very rare. Whether you can get a grant depends on your business and its needs. Often grants have certain criteria and your business will need to meet them. Some grants may only offer money for a particular purpose, such as buying equipment. Applying for grants can be very competitive and you will need a strong business plan and the ability to provide evidence of meeting each point of eligibility criteria. Applications can be very time-consuming, so be prepared for this. To find a business grant have a look online. Most grants are offered by the local authority, the government, or a local enterprise partnership.

Look at the kind of funding they can award before you apply. Ensure they have the means to offer the amount you need. Have a look online to find lists of where you can apply. There are still some grants available for businesses, which are growing and recovering from the disruption of the pandemic.

Organic Growth

Also known as bootstrapping, this can be a hard way to fund a business but can be successful if you are careful with your budget. In a nutshell, organic growth is when a business funds itself from its ongoing profits. However, you will need to be resourceful and have a good financial head with numbers. However, there are great benefits, as you retain complete control over the company and can stay true to your goals. Organic growth can fail if you run out of money, but many companies have been very successful. Apple and eBay both bootstrapped to the top. By funding your business this way, you are establishing viability, providing it has good cash flow and eligibility for further funding from other sources.

This is a slow way to fund a business, but can be very dependable. If you can manage it, there will be huge rewards. Just make sure you remain passionate and stick to your business plan.

Crowdfunding

Crowdfunding is becoming an increasingly popular way to fund small business ventures. The idea is simple, as the ‘crowd’ or large group all contribute money to your fund, which then adds up to a large amount of money. Whilst raising funds, crowdfunding can promote your business and raise its profile. Online crowdfunding pages will enable you to reach people across the globe and be a very successful way to raise funds. Of course, people need a personal interest in your business, if they are to contribute, but the more people you reach, the more likely you will raise what you need. There are a few types of crowdfunding to consider, and with most of them, you will have to offer something in return. Equity crowdfunding is where you give an investor a share of the company in exchange for funds. Rewards-based crowdfunding is similar, but investors receive a reward, such as a gift, once the company is running successfully. Donation crowdfunding is the easiest, but doesn’t work for all businesses. It usually only works when businesses offer a service that helps their local communities and those in need. To find out more, check out our guide on crowdfunding.

Crowdfunding for Small Businesses

In 2016, fintech start-up Monzo raised £1 million in under 2 minutes.

But how did they do it?

Crowdfunding is the answer.

Whether you’re a start-up business in need of funding, an established SME searching for investment or a struggling company trying to stay afloat – crowdfunding could be a game-changer for you.

But how does crowdfunding work and how can you get started?

We’ve put together this handy guide to run you through the ins and outs of crowdfunding and how you can make it work for your business.

What is Crowdfunding?

Crowdfunding is a way for both businesses and individuals to raise finance. You would usually make use of an online platform and ask lots of people for small amounts of money – hence the name ‘crowd’-funding.

There are several different types of crowdfunding you can choose from:

• investment-based crowdfunding – people invest in your business for a stake in return, such as company shares

• loan-based crowdfunding – people lend money to your business at a set interest rate

• reward-based crowdfunding – in return for their investment, you offer a reward to people who donate

• donation-based crowdfunding – people donate to your charity or cause for nothing in return

How Does Crowdfunding Work?

1. Getting Started

To get started with crowdfunding, your best bet would be to use an online platform. There are several options available, such as Crowdfunder, Crowdcube and Kickstarter.

Once you’ve picked the right platform for you, it’s time to register your project. Remember, you’re wanting to sell your business and your idea to your potential investors, so make sure you highlight your USPs!

2. Hitting Your Target

Once your campaign is up and running, it’s time to spread the word. Share your campaign on social media, through your email contacts – basically anywhere and everywhere to make sure it gets in front of as many people as possible.

Be sure to highlight how their donation, big or small, is going to help you improve your business for them as customers and share regular updates on how the fundraising is going to drive momentum.

It’s worth bearing in mind that a lot of crowdfunding sites operate on an all-or-nothing model. This means if you don’t hit your target you won’t receive your investment, so don’t hold back when it comes to promotion.

3. Receiving Your Investment 

Once you’ve hit your crowdfunding target and your campaign comes to an end, the crowdfunding website will usually take a cut from the total amount raised. However, several sites are offering zero platform fees in response to the COVID-19 pandemic.

You should also consider tax responsibilities into your crowdfunding plans. Reward and investment-based crowdfunding, for example, are usually classed as income, so may be subject to income and sales tax.

Crowdfunding Pros & Cons 

Crowdfunding can be a fantastic way to raise money for your business, but is it right for you? Here are the main pros and cons of raising money in this way:

PRO: No More Sales Pitches

Traditionally, to secure investment you’d have to hold meetings with different banks and potential investors, presenting a tailored pitch and plans. Crowdfunding means your campaign, details and progress are all in one convenient place, where would-be investors can take a look at their leisure.

Whilst you may need to put targeted effort into promoting your crowdfunding to the right audience, you won’t be spending time preparing for pitch after pitch.

PRO: Quick, Easy & No Upfront Fees

Once your campaign is live you can raise funds fairly quickly, without having to wait around for decisions from banks or lenders.

Many sites also feature no upfront fees for when you’re setting up your campaign, instead taking fees and percentage cuts once you’ve reached your target.

PRO: You’ll Grow a Fanbase

The nature of crowdfunding means that your investors will become engaged with your project – meaning you’ll grow a fanbase who will stick with you when loyalties are tested.

Take UK beer brand BrewDog as an example. They’ve raised millions of pounds through crowdfunding since in 2007, and are now a household name. Part of their secret is their large community of loyal, small-level investors who are as passionate about their business model as they are about beer.

CON: Clarity is CrucialFace to face, it can be easy to explain your business idea to a potential investor. With crowdfunding, however, you don’t have this luxury.

You must ensure that your online pitch is attention-grabbing and easy to understand.

CON: It Requires Effort

Whilst it may seem simple at a glance, crowdfunding isn’t just a case of signing up to a platform, sharing it on social media and the money comes rolling in.

For your campaign to succeed, you’ll need to push it every step of the way, maybe even spending a bit of money on promotion.

Next Steps

So, you’ve hit your funding targets and now have an excited new set of investors.

What’s the next step?

Make sure you keep your audience up to date with your journey. With crowdfunding comes expectations, and whether you meet or miss these an audience is bound to be more supportive if you keep them involved.

So there you have it, our step by step guide on how to get started with crowdfunding.

It can be a challenging trick to get right, but once you’ve cracked it can be an extremely powerful tool to raise investment for your business.

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