Paths to funding successful business growth

by Karen Baldwin for Simply Business

Taking your business to the next level is an exciting and - assuming all goes to plan - rewarding process. However, choosing the right type of funding to achieve your goals has the potential to be difficult and stressful.

Thorough research into business finance options can help make the process easier, and you can benefit from the considerable experience of finance experts by consulting with companies such as invoice finance broker Simply Business, who offer free impartial advice.

To build on the success that you’ve already achieved to date, it’s likely that you’ll need a healthy injection of funds but before choosing a financial solution you should carefully review your current business plan. If you don’t have a business plan, this is most definitely the first priority.

Key aspects of your business, such as risk management, finances, marketing, intellectual property, staffing, insurance and the structure of your business will all be impacted in some way when your business grows, and you therefore need to ensure that your chosen funding route is flexible enough to develop with you.

In fact, your business structure is often the first thing to change when your business grows, particularly if you start as a sole trader and then decide to take on a partner or register as a company. For the growing business, becoming a limited company could offer some personal protection should things not go according to plan. Sound financial management such as budgeting and cash flow forecasting becomes even more critical when planning an expansion, as the financial burdens are larger and the stakes higher. It would be easy to get into trouble if you are not on top of your financial planning.

The business finance options you should consider will depend partly on what you feel is holding back your growth and partly on your attitude to ownership of the business.

If your goal is to retain full ownership of the business, then the following sources of finance will give you varying degrees of flexibility:

• Savings: Either using your own or borrowing from friends or relatives. Many people have a limited amount of their own funds which they could put into their business. Friends and family might also be persuaded to invest their own savings - if you are sure you can work harmoniously with them!

• Business Loans: It’s generally considered more difficult for a small or start-up business to get a business loan from a bank than for a larger company. However it is not impossible, providing you have the right business plan and proof of success to date. If you own your business property or have other tangible assets, a loan could be secured against it.

• Personal Loans: If you are in a position to borrow money via a personal loan, this could be a useful temporary option. Sometimes growth is driven more by improving cash flow than securing a lump sum. Being unable to pay staff and suppliers because clients are late paying their invoices can be crippling for a small business. If this is the case, then there are financial solutions that have been proven to help:

• Factoring: Ideal for smaller businesses, Factoring is the process of borrowing money against your sales ledger. This type of borrowing is less risky than taking out a loan or overdraft, as the money you are advanced from the factoring company is already owed to you by your clients. Factoring also has the additional advantage of taking on management of your sales ledger for you, meaning you don’t have to spend time chasing invoices.

• Invoice Discounting: This is a similar form of finance to Factoring, but is usually used by larger businesses as it allows you to keep control of your sales ledger.

• Asset Finance: This type of finance allows you to borrow money to buy assets for your business, such as vehicles or machinery. The loan amount is secured against those assets. Payments are spread over a period of time in order to keep pressure off your cash flow.

• Asset-based Lending: For this type of finance, a lender will look at the total value of all the assets on your register, not just your sales ledger, and advance you a loan based on this amount. Business owners who believe that the growth of their business would be best facilitated by outside investment in return for a percentage of the company are free to consider these financial solutions.

• Business angels: These are private investors, either individuals or groups, who finance or mentor growing businesses, usually taking a stake in the business. They can be an excellent way of tapping into the skills and expertise of other people to help guide the business.

• Venture capitalists: Individuals, groups or investment funds who may provide their time and money by becoming your business partner and may provide mentoring and advice to help you research and develop new ideas or products. Venture capitalists often expect higher returns for the additional risks taken.

• Share ownership or equity: This is a private part-ownership arrangement that shares the business profits with investors. Similar schemes exist with employees to encourage increased productivity.

• Listing the company on the stock exchange: This option is best suited to those companies with significant future growth opportunities and allows companies to sell shares publicly on the stock market to raise money. Shareholders receive dividends or payments in return for ownership.

The government also runs some schemes for funding the growth of small and medium sized businesses in order to support specific activities such as research and development or exports. For more information on the funding available click here.

As with any important business decision, research and planning represent the key to success. There are many sources of information on the various types of business funding, many of which are free and easily accessible. You can also contact many lenders for details of their products and services with no obligation to buy.

All that’s left then is to take the plunge, put whatever funding you receive to maximum use, and focus on pushing your business forward towards a successful future.

Simply Business offers completely impartial invoice finance quotes online and a free consultancy service. We will talk you through the most appropriate providers for your business, guide you through the sign-up process and offer a personal point of contact for any further queries after it is complete.

If you don’t wish to compare quotes online, you can contact one of our consultants directly on 0800 072 6030 to discuss your requirements.

This article was originally published on Simply Business. http://www.simplybusiness.co.uk