Financing New Business Ideas
As in previous recessions, the current economic climate is leading to an increase in the number of new businesses starting up. Many successful companies started in a recession – Microsoft to name but one – which makes sense, as in a recession people are more likely to lose their jobs and find it more difficult to secure another one, leading some to set up on their own instead.
Some start-ups go on to achieve great success, but unfortunately many do not, and it is often the case that someone may have many years of experience in their chosen field, but does not look at the basics of how they are going to fund the business, either at the start or on an ongoing basis. Cashflow is king for any business model, and it is no use having a £10 million turnover if the company does not make any money.
In terms of the capital cost of setting up a business – such as buying equipment and stock – this could be covered by personal monies, investment from family or friends, redundancy cash, grants or business angels (Dragons’ Den-type funds). There are many organisations which provide grants but they are often difficult to obtain – J4 Grants, Business Link, Advantage West Midlands and Chambers of Commerce are all possibilities locally.
The problems experienced by UK banks over the past 12 months have been well-documented, but few businesses could get by without them. The government has provided loans to the likes of Lloyds and RBS to get them lending again, but the evidence suggests obtaining funds is still difficult. Nonetheless, there is still some lending going on, but accessing it is more difficult – a solid business plan and realistic expectations are a must, as is a willingness to shop around.
Another possibility is invoice finance, sometimes known as factoring, invoice discounting, debt finance or cashflow finance. It involves a company selling its invoices to a third party which will then allow the company to draw loans against the money owed. In some cases, the third party will also process invoices and collect the debts on the company’s behalf. The industry has over 100 players and is proving popular at present, but it is not suitable for everyone and professional advice should always be sought.
Securing the funds to help set up a new business is not easy at the moment – but the money is still out there for the right ideas.