A Guide to Financing a Start-Up
It’s an astonishing fact that in the UK, around 70 new businesses are created every hour of the day. Sadly, around 60% of them will go under within three years. Underestimating how long it will take before a new business begins to see a profit is one of the key factors, which results in the collapse of so many new businesses. Securing a solid financial base for your start-up is essential. Here are some key points for you to consider.
Create a realistic budget
Begin with the sum that you intend to invest in your start-up and work backwards from there. Identify everything that you think you will need and then identify the essentials. Estimate how long before you can expect to see a profit. Calculate your monthly running costs. Add 10% to allow for a margin of error and then trim your budget until you have a viable model.
Global investment through the means of crowd funding is predicted to reach $93 billion by 2025. Crowd funding tends to support mainstream ideas and is not necessarily a good way to raise money for innovative ideas, but it can raise substantial sums in just a few months.
There are hundreds of government grants for which you can apply, and which can be used to save money on premises, plant or IT equipment. Direct grants require you to match government funding whilst equity finance provides up to a 50% reduction in income tax on investments made in a new business. Soft loans are low interest loans of up to £25,000. Talk to the grant body first to see if your start-up will be eligible before your start what can be a long and complex application process. Target the grant objectives in your application and demonstrate how this money will help you grow your business and create jobs.
Separate your business money and your personal money
One of the main reasons to separate personal and business finances is to take advantage of tax reductions for business expenses. Credit cards are useful to small business owners because they give access to ready credit for business expenses. Provided you clear the full balance each month, a credit card provides free additional working capital at no additional interest cost. Compare the credit cards currently available to ensure that you get the one that is most appropriate for your business.
Have a contingency fund
Sinking everything you have into your start-up is romantic entrepreneurism, and in most cases leads to an unhappy ending. Always expect the unexpected and have a fund ready to deal with those slings and arrows.
Decide if you need investment or a loan
You can of course have both. Taking out a loan means that you retain complete control of your business and that all profits are yours. The loan repayments obviously have to be factored into your monthly running costs. Equity financing means that you don’t owe money but in return you hand over a share of control and a share of the profit.