Funding
- A Capital Idea !
Calculating
and acquiring funding is essential to
make your idea come to fruition. Here we will
discuss sources of grants and loans and their pros and cons. |
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FUNDING
A NEW BUSINESS:
How much will you need?
Exactly how much money you're going to need, to start, will
become clear as you prepare your business plan and cash-flow
forecast. And the requirement broadly falls into two stages.
The pre-start costs (things like kitting out your office
or other premises, buying in an initial stock or raw materials,
advice, machinery, insurance etc) and the post- start
expenses, needed to keep you going until adequate sales income
starts to roll in.
Pre-start costs are easier to calculate because , being predictable,
you can quickly reckon up a reasonably accurate total. Even
some of the post-start costs like your own, personal, survival
budget- a minimum income level that you must achieve, are
easier to assess because it is comprised of fairly specific
sums. But estimating sales values, and when they will occur,
are the elements of a cash-flow forecast that usually cause
most creasing of brows.
In addition, if you are giving credit to your customers, when
they will actually pay? You may have very specific payment
terms but will the customers stick to them or take longer?
A guide will be whatever is usual in your industry. Income
for a cash business is less of a problem but it must still
have a clear idea of sales levels.
Answers to these questions will affect the amount of start-up
funding needed and must be accurately introduced into your
business plan.
I understand that in the early stages of planning a totally
new business, income and payment are a guess. So it will be
an accurate 'guesstimate' (as a lot depends on getting it
right ). But it can be done. It starts with goodquality
market research. Remember. I have said that the successful
business must discover what the customer wants. If you do
that, in the process you will also build a clear picture of
demand and from that, you can form a much more accurate idea
of likely sales and customer buying patterns.
If you are going to buy an existing business, the guesswork
should largely disappear because you will require sight of
at least 3 years' audited accounts. From which you will be
able to clearly see the historical sales and payment pattern.
You also need to be clear what type of funding is best. Buying
some item of machinery that has a useful life expectancy of
say 4 years, would merit a fixed-term loan for that period.
Occasional cashflow deficits (say due to predictable seasonal
demand) may be best funded by an overdraft agreement, so that
you have the flexibility to meet a temporarv cash shortfall,
without having to re-negotiate with the bank each time. But
always shop around for best terms and always consult your
accountant first.
GRANTS and LOANS;
Funding
sources for new business:
- Your own money
- Banks
- Friends & Family
- Grants: ask local and county councils, Business Links, enterprise centres.
- The Prince's Trust if you're under 30
FUNDING
FOR DEVELOPMENT OF AN EXISTING BUSINESS;
As
you need to grow, you need more capital.
Talk to:
- Banks.
Yours first.
- Venture
Capital groups, possibly via your local Business Link
- Government
Grants ( see above )
- Small
Firms Loan Guarantee Scheme ( via some banks )
See our link to select your legal and financial advisers
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