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When it comes to business, money makes the world go around. We would like to think it is more than that, but ultimately a business without money will fail. It is money that keeps the lights on, allows you to pay wages and invest in marketing your business to make more money. In the modern world, cash is king.
But what happens when you need more money than you have? In situations like this, you might need to look at various ways of raising finance for your business. Whether for a one-off project or to help you weather a difficult time (like a pandemic, for example) – finance can be a business saver. But how do you go about it?
Why is it important to raise finance?
There are a lot of different reasons your business might need to raise finance. Whether you have a new project you need to get off the ground, want to give production a boost, purchase new equipment or just want to improve your cash flow during challenging times. Raising finance is a way to achieve all of these things without putting your company in financial jeopardy. And it does not have to be a long or arduous process. Whatever reason you decide to seek finance, you need to be sure you have a strong business pitch.
How can you raise finance?
The idea is easy enough, but when it comes to actually getting additional finances, you have a lot of different options ahead of you. The good news is they all tend to fall into two categories – borrowing money that you repay at a later date or selling equity shares in your company for investment. Once you decide which style of finance you prefer, you can look at the options for your business depending on your size, how much money you need, what your growth plans are and how much control of your business you want to keep.
Some of the most common forms of financing for business include:
Loans: The most simplistic answer is a loan. Almost all banks will have a lending capacity, with a full range of products aimed at businesses. You can choose from short- or long-term loans, specific loans for the type of funding you need, or more generalised finance. Just don’t forget to shop around, as all banks will offer something slightly different for your business.
Self-funding: If you have the ability to, you can also fund your business from your personal finances. This has its advantages since you are loaning the business money and can draw that money back out in the future. There are significant tax advantages to this approach, as well as allowing you to stay in control of your business.
Angel investors: Angel investments are simply when an individual agrees to provide you with funding, in exchange for an equity stake in the business. Like the popular BBC show with some well-known dragons, most business angels are often entrepreneurs themselves with a lot of time on their hands, so not only do they understand what you’re going through, but they can be an incredible source of information on how to use those funds to expand and improve your business.
Venture capital: This type of finance is provided by wealthy firms or even individuals, like the dragons own empires. They invest in businesses with high growth potential and will typically invest large amounts at a time. This can be great news for your business, but it also means you are more likely to see more pressure for results or be asked to give the investor a higher equity share in return. This avenue is not right for everyone, but it is always worth investigating.
Government help: The government does more than collect money from businesses. It also provides a lot of help in terms of relief, grants and subsidies. Looking into which schemes you might be eligible for is a great way to raise finance for your business. For example, many businesses who are eligible do not realise that they could be claiming R&D tax credits. Speak to your accountant or a local council to find out what government help is on offer on a local and higher level.
Crowdfunding: Crowdfunding is one of the more modern solutions, but for the right business it can be incredibly lucrative. Crowdfunding often works best for consumer-facing businesses, often for developing and launching a new product that customers can get behind. Using one of the crowdfunding platforms, you write a story about your product and showcase your business and ask for donations to help you fund your project. Often this means lots of investors putting in a small amount, in return for rewards. For example, exclusive pre-orders or a small discount or a gift for investors. You can also implement a technique called ‘stretch goals’, which gives further incentives to investors if you hit your goals.
Our top tip
If you are not sure which option is right for you, or you just do not know where to start with raising finance, our biggest piece of advice is to get help. Speak to your local friendly accountant and find out more about your situation. They can help you understand what exactly you need and advise you on how to achieve it. They can even suggest cost-saving measures or other options you may not have been aware of, all to help you manage your cashflow and ensure cash remains king in your business.
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