So, you’ve got a great business idea but you don’t have the funds you need to make it a reality. We spoke to Indy Goraya, former investor at BGF, and now, business coach at ActionCoach, for his advice on securing funding for a new business.
You’ll firstly need to have a solid business plan to help decide how you’ll fund your business as this will affect how you structure and run everything.
Your business plan should include various elements, such as details of your marketing strategy (and other growth strategies), an analysis of your competitors, a development plan of your products or services, an assessment of target addressable markets, a team overview and operational and financial information.
Once you have a strong business plan ready to go, it’s time to start exploring your funding options.
Here are 8 important steps to help you secure the funding you need to kickstart your business.
1. Work out how much funding you’ll need
It may seem obvious but your business plan won’t be complete without a cohesive understanding of how much funding you need to enable you to launch or grow your business. Spend time working out your forecasts, KPIs and financial strategy – you will be quizzed in depth on this by anyone who is considering giving you investment. Assessing how much capital to raise requires an understanding of the company’s forecast financial performance, including those initiatives that funding will be used to accelerate. The business plan must include the use of funds, such as new hires, acquisitions, marketing, investment in technology, new premises, etc. If cash does not dip into negative territory, then funding may not be required at all, and it may be possible to fund the intended growth profile through cash and retained profits.
With these assumptions included, the cash flow will illustrate the amount of cash required, equal to the lowest negative balance. Add an appropriate amount of headroom to this figure as a safety net and then you can calculate the total funding requirement:
Funding Requirement (£) = Largest Negative Cash Balance (£) + Appropriate Headroom (£)
The British Business Bank go into more detail on areas to consider when determining how much funding you will need in this useful guide. You may need to get rough quotes from other companies who would be involved in supporting and offering services to your business (e.g website design agency, app development company, etc.)
2. Review your brand identity
Having a clear and visual brand identity will ensure you are in the best position to launch your business once you have secured funding, but it will also help you to communicate your vision to potential investors. This could be the key to securing funding or not, so consider using the expertise of a marketing agency or a freelancer if you don’t have the design skills in-house.
3. Determine whether self-funding is viable
Bootstrapping, or self-funding, is a combination of your own personal savings along with help from family and friends. Self-funding will mean you retain complete control over your business, but you will also be taking on all the risk, so be realistic and cautious with what you can afford. Understand that withdrawing from pension funds is often not advised as it could hinder your retirement age and will mean you are hit with a tax bill of 55% on what you withdrew – speak to a financial advisor before making a decision like this.
4. Secure venture capital from investors
Investors, either angel investors or investment companies, give funding to people looking to start or grow an existing business.
If going down the investor route, it is important to be aware that you will need to give up some portion of the control and ownership of your company in exchange for your funding, often in the form of shares in the company or with the expectation of financial return. Some investors will want to have an active position in your company, which may be in the form of a board member who helps to determine and review company goals or a business coach who helps you to achieve your potential through training and development.
You will need to approach the right investors for your business. Investment firm, Midven – one of Digital Glue’s clients – supports SMEs requiring up to £1m of investment in an initial fundraising round. Other VC firms may invest earlier than SME status, at the ideation stage of your company – for example, Simsan actively invest in pre-seed & seed startups.
Investors invest in companies with high-growth potential as they take greater risks – if the business fails, they lose their money (unlike a bank loan where the debt must still be paid back). They therefore seek higher returns to account for the additional risk.
5. Look into crowdfunding
Crowdfunding is a way of raising funds for your business through a wide group of people, AKA crowdfunders. They contribute financially to your business and, in return, expect a product or service from you, e.g. a crowdfunder who contributes to a new camera brand might expect a new camera once the fund has been raised and production is underway; a crowdfunder who contributes to a new events company might expect to be invited to their events.
Crowdfunding is a popular option for businesses seeking funds as you get to retain full control of your company, but if the business fails, you are mostly under no obligation to repay your crowdfunders (though this is not necessarily always the case so do check the terms and conditions of the crowdfunding platform you use).
6. Consider a business loan
To retain complete control of your business, you may want to apply for a business loan through a bank.
Most banks will expect you to have a strong business plan, a breakdown of your expenses – think set up costs, staffing costs, R&D costs, software management tools, web development, etc. – and your financial projections for the next three to five years. Knowing this will help you determine how much funding you’ll need (see step one) and also help the bank feel confident in giving you the loan. Be sure to check out various banks to ensure you get the best loan terms.
7. Research government grants and loans
There are a number of government grants and loans that may be applicable to help launch and grow your business. Through the ‘Start Up Loan’ scheme, you can apply for a loan of £500 to £25k to help start your business if you live in the UK, are over 18 and you have (or plan to start) a UK-based business that has been trading for less than 2 years. Do note that this is not a business loan, it is an unsecured personal loan, with an interest rate of 6% per year which must be repaid over a period of one to five years.
Another option which may be applicable depending on the type of business you are setting up is to seek a government grant through Innovate UK. They provide grants to businesses who are looking to develop innovative solutions, supporting the development of new approaches, across a range of technologies, in all sectors and industries. These include advanced manufacturing, artificial intelligence, digital, electronics, bioscience and advanced computing. You can find out more about the funds they are distributing here.
8. Hire in a business coach
To give your business the best possible chance of raising finance, consider hiring a coach who has sector experience and can guide you through the process. In many cases, the ability to secure funding to pursue your growth plans will enable you to achieve your personal and business goals, so it is important to give yourself the best possible chance to achieve this.
Having a coach or advisor on hand who can leverage their experience could be extremely valuable and save you a lot of time and clarity. An obstacle most entrepreneurs face when raising finance is managing the toll it has on their bandwidth, as they navigate growing and running the business at the same time. It’s no surprise that business performance does normally take a hit during a fundraise as the attention of the business owner is focused elsewhere.
A good business coach will be able to help guide you through the fundraising process. Following a successful raise, having them stay on board will give you the best possible chance of then executing your business plan.
There are many business coaches in the UK but it’s important to assess them and understand their experiences to ensure it has maximum impact on your business – e.g. Indy Goraya at ActionCOACH Birmingham, who has experience advising and investing in businesses, and now operates as a business coach.
With so many options available to help you launch and grow your business, it is essential to take time to work out which funding route is best for you. To do this, make sure your business plan and brand identity are strong. If you need support with the latter, we’d love to help – just drop us an email.