Having a great business idea is just the first step to setting up a viable business and one of the biggest barriers is how to get business finance for your great business idea.
In this article, we provide the main revenue streams to consider to help finance new businesses in the UK as, let’s face it, it won’t be cheap and you may well have to incur a large upfront cost before you even start trading. Costs could include anything from renting premises to run your business from, buying equipment, marketing and advertising and the unavoidable costs of registering your business with Companies House and HMRC and accounting costs to ensure you work within the law and in the most ta efficient way possible.
How to finance business therefore is one of the main hurdles to overcome to becoming self-employed.
You may have worked hard saving funds to help get your venture of the ground, especially if you have a large initial outlay to get up and running. Or you may have savings to support you financially whilst you set-up in the first year or two of trade aiding your transition to self-employment.
Having a savings cushion still in place as you embark on a new business adventure is the ideal position to be in, as dipping in to your savings could leave you vulnerable and at financial risk at the most crucial point when cash flow is required to keep your business afloat.
We strongly recommend you seek business advice from a reputable accountancy firm, such as Southside Accountants, who provide accounting for the self-employed. Please contact us to see how we can help.
Another option which may be available to you is to fundraise your business idea to worthy investors for long-term investment.
In this scenario, having investors on board for financial support and invaluable business advice, where you can partner with experienced investors in your industry, who can potentially help you grow.
Often a stake in your business would be given in return for investment, which you can then buyout if you like at a later stage when your business is established. Or you may enjoy the benefits of a seasoned investor who can provide ongoing business support if you feel you lack the experience yourself.
For both situations, you will need to calculate how much investment you require to help achieve your business ambitions and be comfortable in giving up a percentage ownership of your business, if the investment leads to a profitable business.
External investments do not necessarily need to come from investment banks but can also be sought from friends or family, or other complementary businesses in your industry with perhaps an opportunity to partner and grow together.
The important thing to remember is to be very clear on your business goals and strategy and what investment you require to be able to reach them.
Seeking investment from external sources however may not be feasible in your industry or you may not want to share your business success and profits with investors, so an alternative more accessible option is to seek a start-up loan to finance your new business.
There are a multitude of banks who provide business loans, which include loans specifically geared for start-up businesses, and they would operate in much the same way as standard loans where repayments are made monthly.
You may also be able to enjoy the benefits of funding from the government, who offer a range of financial options, including loans and grants, available specifically for small businesses in the UK, designed to stimulate the growth of new businesses and the UK economy.
Government loans range from £500 to £25,000, and could be a useful option to support new finance in your business to help you get established and cover initial costs before you start trading.
Government grants are readily available but can restrict by sector or location, but are not repayable. There is usually an application process to apply so no guarantee you will receive funding or the level of funding you require.
Crowdfunding is becoming an increasingly popular source of income for UK start-ups across a wide range of industries and sectors, and could be particularly effective if you have a new product to launch to market versus providing a particular service.
Well known crowdfunding websites such as Kickstarter and GoFundMe are open to public funding in return for customer rewards for example, and this could be just the right course of action for you if you are also looking to market and test your product to the public.
With crowdfunding websites, you will need to think carefully on the level of finance for your new business and what the funding will cover as, if you do not reach your funding goal within the time limit, you will not receive any of the funds raised.
So crowdfunding is a great idea if you are confident of your product selling well and all you need is finance to launch and grow your business. You are also of course bound by any promises you make in your crowdfunding project to those who invest.
How can Southside help you finance a new business?
As small business advisory accountants in London, we understand how time consuming and difficult it can be to finance a new business venture, with cash flow being the most crucial element to business success.
Southside Accountants can help with your company formation and work with HMRC on your behalf for your accounting and tax obligations, so you can focus on the important work of running your business.
Please contact us to see how we can help you realise your self-employment ambitions.
Written by Shaima Todd