IN TOUGH economic times, business owners know that it’s more important than ever to keep their finances in order and to understand the best way to go about securing funding to grow.
Over two-thirds of small business owners agree that information, help or guidance with finance would be beneficial to their business. But nearly three-quarters of young business owners believe there isn’t enough information available on the subject.
The best way to ensure you get the right type of funding is to be fully informed of the different types of finance available and how they relate to your business before making any major decisions.
Business in You, a partnership between the Government and private sector and supporters of this year’s Local Business Accelerators campaign, is making it easier for businesses to access information on finance.
Through its Find Finance section, Business in You can help businesses to plan, prepare, and apply for the funding they need to grow, including an interactive Business Support and Finance Finder to help assess the best type of funding for each business’s needs.
The range of options for business finance includes:
• Start-Up Loans, which are now available for 18 to 30-year-olds and come with a package of business support;
• Enterprise Finance Guarantee, which provides additional lending to businesses that lack the security to secure a traditional loan; and
• Seed Enterprise Investment Scheme, offering significant tax incentives to investors who fund qualifying small businesses.
Four out of five SME owners have no formal training in financial matters and only 20 per cent seek advice before applying for a loan. But getting advice can dramatically increase their chances of securing funding.
Seeking the support of a qualified professional business advisor, such as an accountant, lawyer or bank manager, could be invaluable to a small business before applying for finance.
MentorsMe.co.uk can connect businesses with specialist business finance mentors. More than 1,000 of its mentors are current and former high street bank staff who have volunteered to mentor businesses for free. Businesses can be confident the advice is impartial by working with a mentor who is independent of their own bank.
The most important factor in a successful application is convincing the lender or investor that you will be able to pay them back. Most unsuccessful applications are due to an inability to demonstrate this or a bad track record in paying debts.
Currently only one in three owners develops a business plan but many bank managers cite a solid business plan as the key factor in a successful application for finance.
A business that presents a clear plan with projected profits, cash flow management, market research and a marketing plan, in addition to showing how the funding will be used, demonstrates that they really know the product and the market and gives lenders confidence of a return on their investment. Free assistance in developing a business plan is available during National Business Planning Week, to be held February 11-17 by the Your Business Matters Tour and Business in You.
Once a business plan is in place, and the business begins to grow, cash management becomes crucial to success. Around 400,000 new businesses start in the UK each year, but one third of start-ups cease trading within three years and, more often than not, poor cash flow management is to blame.
Managing cash effectively and knowing where to turn for support and guidance are therefore vital for small business owners.
Business in You, together with the Institute of Chartered Accountants in England and Wales (ICAEW), Association of Chartered Certified Accountants (ACCA), and Ernst & Young, have produced two key resources for small businesses: A Guide to Financial Management for SMEs and the ICAEW Small Business Finance Best Practices Guide. Both are available to download free from the Business in You website.
By using the tools available to them, small business owners and entrepreneurs can not only build a successful business but provide a boost for the wider economy as they do so.