No matter the size, age or experience of a business, raising finances is continually important. However, it can be particularly difficult for smaller, younger companies who are starting out. Start-up costs can be substantial, as well as the cost of general day to day running of the business- it all adds up. Depending on the company in question, funding could be needed for equipment, materials, vehicles, premises or staff, or just overall investment for growth.
With this in mind, how can businesses raise much needed finances in order to ensure long-term success?
Overdraft
Many businesses will choose to use an overdraft as a way of accessing short-term credit. The benefit of an overdraft is that it can provide fast, relatively easy access to funding and is therefore ideal for emergencies. However, overdrafts are not a good option for long-term credit as they tend to come with high interest rates. Therefore, companies which are just starting out and looking for finance should avoid this line of credit, unless absolutely necessary.
Loans
Similar to an overdraft but with a more long-term outlook, loans can provide large amounts of credit, which is then paid back over a set period of time. Loans also tend to have lower interest rates compared with overdrafts and are therefore more suited for business looking for funding. However, companies should note that getting a loan can be difficult and is often dependent on your credit rating. Those who can get a loan are also responsible for paying it back and this means a fixed monthly repayment schedule. Therefore, businesses should only go down this route if they are able to meet these long-term responsibilities.
Crowdfund
The rise of the internet and social media has had a transformative effect on business and this includes financing. Crowdfunding is the perfect example of how companies can garner investment, in the modern world. Traditionally, investment would come from fewer, wealthier individuals. However, the crowdfunding model involves many, smaller donations, with lots of people having a small stake. There are many benefits to crowdfunding, the main one being that it democratises business, providing opportunities to many people who wouldn’t normally have had access to them. It’s also beneficial in that the process has a sort of inbuilt market research as the business is getting continual feedback from interested parties.
Crowdfunding may be an ideal way in which to raise capital but it’s not going to work for every business. It tends to be best suited for more exciting, Avant Garde or novel products or services and therefore isn’t appropriate for everyone.
Angel Investment
On the other end of the spectrum to crowdfunding is large investment from an individual or small group of individuals. This is known as an angel investment and will often include an active interest in the business from the investor. If your partner has experience within business, or even better the sector you’re hoping to enter, this means you will be getting funding and valuable advice. However, angel investment may also include sacrifices, for example having to give up a stake within your business. This can be a sacrifice that a company is willing to make but it differs accordingly and should be considered before going down this route.
Securing continual funding for your business can be an arduous task. The business experts at Salhan Accountants have a wealth of experience in financial organisation and can work with any organisation to help improve their approach to funding. This includes objective advice, drawing up relevant business plans and connecting companies with the relevant financial institutions.
