When starting a business, funds will be required to get your business up and running. Some businesses will require premises and staff, some may require stock or materials and some may require outsourced expertise (legal advice or technical support). It’s important to plan what you need, when you will need it, how much it will cost AND how you will finance this. This is a rough guide to what financial support may be available to your business in Durham. Managing your cash flow at an early stage is critical and planning your spending can influence how your business will grow… or not!
How a start-up business can be financed:
Here’s a simple breakdown of how a start-up business can be financed:
- Own investment
- Friends and family
- Credit card
- Hiring, leasing, or renting
- Investment (Equity finance)
What do you need to build your business?
Plan ahead. What does your business need to help it operate? Do you require premises, IT or the tech or platform to be developed?
You may also require specialist support or people to enable you to deal with certain business functions for example, an accountant, a website/graphic designer. Some of these specialist may be sourced externally.
You may need people to work in your business or on your business such as staff or Board members. You’ll need to keep things legal and therefore will need policies, procedures and agreements. You’ll need insurance and may need help with Intellectual Property.
Think about what you need and when you’ll need it, then can you fund it or do you require investment?
Lots of choice?
At first glance this may look like a lot of options, however, funding a new business can be difficult and some of these options may not be available to your business. To find out more about finance and funding, the British Business Bank have put together “The Business Finance Guide” which explains all you need to know about the different types of finance available for businesses.
Financial support to businesses can be from National, Regional or Local funds so it’s worth finding out more before you go ahead and purchase things for your business.
HERE’S A GREAT GUIDE FROM BRITISH BUSINESS BANK
This guide explains what types of finance are available to you at different stages of your business, from loans to investment. Click here to download the guide.
Grant funding is great for your business as you usually don’t have to pay this back, however, grants are very limited, often have eligibility restrictions and are usually available when you’ve started trading. Always familiarise yourself with the rules and regulations of grant schemes BEFORE you take the plunge and make an investment – prior commitment to spend often disqualifies a grant application. Examples of grants available in Durham include:
Loans are more commonly used at start-up stage and are available from “Virgin” “Transmit” and “NEL Small Firm Loans” and your bank may offer business loans. You’ll need a business plan to apply for a loan and remember you will need to be able to pay monthly repayments, so planning is essential.
Key Elements of a Business Plan
No more than one page. This is your selling tool, summarise your business, the opportunity, where you are and the investment you require to achieve your goals.
MARKET ANALYSIS AND SALES STRATEGY
Market research, market size and demonstrate need/interest. You’ll also need to demonstrate how many customers, how you’ll get them and what you will charge.
OPERATIONS AND DISTRIBUTION
What does your business have or need to achieve sales, how does your business function and how do customers buy from you?
FINANCIAL PLAN AND PROJECTIONS
What you project in terms of sales, cash flow, profit and loss and a balance sheet. Be realistic and also consider a best and worst case scenario.
Credit cards, hiring/leasing or renting can be ways of spreading payments on high value purchases for example equipment or IT infrastructure, however, these again must be paid monthly and can be a very expensive way to borrow. Any type of lending carries risks and you’ll need to be aware of charges and fees associated with lending.
Crowdfunding is another way of raising finance and can be done in a variety of ways, for example it could be equity based (providing shares or stake in your business for cash), rewards based (you provide a reward for each donation of cash), donation (usually for projects or third sector organisations) and lending (whereby you lend cash from peers).
Crowdfunding is relatively new in the UK, but it isn’t easy to raise investment. You can put a lot of effort into a Crowdfunding campaign and not reach your target.
If you are an ambitious, high growth business, you may also consider investment from a Business Angel or Venture Capitalist. Investment can be raised in return for shareholding in your business. You will need to demonstrate that your business model is scalable, you have a great team in place that can deliver to its potential and you’ll need a compelling business plan and projections to demonstrate “a return on investment” for any potential investor. The North East Fund has its own Venture Capitalists that can provide investment to businesses at different stages of their journey.
Can you develop your idea with a limited budget, use your own cash or resources or may be friends and family? It’s difficult to bootstrap but if you can, then do it.
PRE SEED INVESTMENT
This investment is usually required at “proof of concept” stage of your business, usually pre-revenue. You need it to help build an Minimum Viable Product (MVP). Pre seed investment could be a small amount of around £10k up to around £150K.
You’ve proved to the investor you have a workable business model, you have traction and you need cash to grow. Typically Seed investment starts at £100K up to £1m plus.
Search for funding
The North East Growth Hub provides information on national, regional, and local funds and you can also access one-to-one support through growth hub connectors.
COVID 19 has had a profound effect on the economy in County Durham and beyond. Business Durham provided “COVID 19 Business Support Brochure” to guide you to the support available in County Durham.
Many of these funding options carry risks and have restrictions. It’s always worth getting in touch with fund managers and local business advisors to discuss the options available to you before you go ahead with any spending. Funding and investment is subject to change, so getting advice and support can help you plan forward.