You need cash to start a business. There’s a lot to do and one essential job is finding the right source of business finance. You might have a leading commercial idea but without this immediate injection of funds, your new business will most likely not go anywhere.

Nonetheless, thousands of entrepreneurs do find the money to start a business. How do they find these funds? How do they get started?

Start-up Finance options

The most immediate form of start-up finance is capital provided by the business owner(s). Before pouring out your life savings into your new business, it’s important to fully understand what you are doing as every business is not guaranteed success.

However, there are several types of business loans available for new starts. A bank loan or overdraft may be used to provide short-term working capital. Bear in mind that banks often require security and evidence of trading results before lending out to businesses. In addition, asset finance, through hire purchase and finance leasing, can be used for the acquisition of fixed assets such as machinery and property.

Further capital can be obtained by approaching a business angel. Borrowing money from friends and family can do you some good in the interim. The good news is you could receive all the funds you need at very low costs. However, this form of financing could require you to give up some control of your business – resulting in a smaller share of future profits.

Factoring – financing facility for start-ups

Factoring can provide essential finance early on in a business’ life. Factoring is a form of cashflow funding that allows you to release cash from outstanding invoices as soon as they’re raised. The funds released could be up to 90% of the cash tied up in your business’ sales ledger, with the funds made available to you usually within 24 hours. The remaining 10% of the funds would be paid to you once your customer settles their invoice, less any charges.

One of the greatest difficulties faced by start-up business is cashflow gaps created by late-paying customers. Most businesses tend to operate on credit terms of up to 90 days which unfortunately puts a strain on a new company. Factoring creates a strong cashflow that enables a new business cover its start-up costs.

Citing a manufacturing firm as an example, the funds advanced by the factor can be used to pay for raw materials against its next order. On the other hand, the funds advanced to a start-up recruitment firm could be used to invest in expenses such as advertising for job vacancies.

The Benefits of Start up Businesses Factoring

Working Capital

Take advantage of high cash advances of up to 90%, against the value of your sales ledger, usually within 24 hours. You no longer have to wait 60-90 days to get paid by your customers.
The funds advanced provide additional working capital to businesses. In working capital we mean adequate cashflow to cover payroll, operating costs, make initial payments to suppliers or to reduce existing debt. This allows your business to continue to grow without the fear of over-trading.

Early supplier discounts

Funds advanced through factoring create opportunities to save money. Most start-ups are plagued by cashflow challenges and need to ensure that every penny is well spent and every potential discount needs to be utilised. Factoring boosts your bargaining power and enables your business to benefit from early supplier discounts.

Flexibility

Factoring grows in line with your business. This means that as your business’ turnover rises, you could have access to more funding. There’s no need to increase your credit limit with other facilities.

Factoring is flexible in the sense that you have better access to/ control over your finances. Once you stay within the funding limit, you can choose to borrow as much or as little as you want.

Credit Management

Factoring is not just a ‘funding-only’ facility but also has a service element attached to it where the factoring company handles the credit management on your behalf. This involves full administration of your sales ledger which eliminates the burden of chasing customers and collecting payments. By outsourcing the credit control management, cash can be collected in a timelier manner, thus reducing the pressure on your start-up demands. This allows you to concentrate on starting your business.

Bad Debt Protection

If required, factoring could offer bad debt protection. This is by means of a non-recourse facility where the factoring company bears the risks associated with your customers defaulting. You are protected against bad debt that might otherwise have to be written off as an expense to your business. This is a major comfort to start-ups looking for expansion as they are relieved of the uncertainties about late (and overdue) customer payments.

GUEST BLOG: This business advice article was provided by Touch Financial, the Factoring specialists.

Yet there is a way for small business to remain competitive, increase capacity, enter new markets and secure new customers with expansion costs being kept to a minimum – collaborate.  In its’ simplest form, collaboration involves two or more people working together with a common goal to improve their position. In many cases this will involve sharing knowledge and planning how best to use the joint resources (client lists, technology, networks, investments etc.) to achieve the goal or goals for each party.

Technological developments means your list of potential collaborative partners no longer needs to be restricted geographically, so the opportunity to share the development costs of entering new markets, taking on larger clients, and securing new customers is open for all to take. There are  also plenty of ‘tools’ available to assist your collaborative efforts from the simplest of email and telephone, to web conferencing and the increasingly popular document & calendar sharing, social media, and web forums.  The majority of these tools cost little or no money to use so the ‘barriers to entry’ for collaborative working are minimal.

My own company actively works in this way with a number of projects on the go with different collaborative partners, some over 300 miles away! We speak regularly, have plans mapped out (Gantt charts can be useful for time sensitive tasks and identifying responsibilities), keep an eye on shared costs, and are clear about what we each want to achieve from the collaborative effort.

Tips for a successful collaboration

• Think carefully about your collaborative partner(s).  They may be a company you already have a relationship with, in which case consider whether a collaborative project would enhance or be detrimental to that, but if not then take the time to research who might be suitable. Some basic ‘due diligence’ in terms of trading history, previous successful collaborations, and general reputation is a good idea.

• Consider how the collaboration may be viewed by significant others in your business e.g. customers, suppliers, shareholders if appropriate. If there is any question that this approach will not be positively viewed, have a re-think.

• Be clear and put in writing the objectives of the collaboration, who is responsible for what and when, costs and how these are shared (who pays for what), and crucially be clear about ownership of Intellectual Property.

• Be clear from the start about what you want from the collaboration in terms of furthering your own business objectives and make sure that these are complimentary (they don’t have to be the same) to the company you are partnering with. The whole point of collaboration is to achieve a very specific quantifiable goal (e.g. secure a public sector contract, increase client numbers) rather than just a general mutually agreeable relationship with no clear focus.

I’m a keen advocate of collaborative working and have been doing this myself for many years. I’m not, however, saying you should just hop in to bed with the next business that comes along! Collaboration for collaboration’s sake is unlikely to be successful, but you may be surprised where opportunities arise. Keep an open mind as to whom you could partner with, including those you currently view as competitors, to achieve greater recognition and success.

We’ve all seen the news lately and heard of lots of large and small businesses closing down. No doubt, you’ve also seen the impact on your high street with both large and smaller, independent retailers shutting up shop.

However, it’s important to realise that despite uncertainty in the economic environment, high levels of competition and increasingly value and price conscious customers, there is demand and opportunity out there for businesses that provide good value products and services combined with great customer service.

This is backed up by research from the Institute of Customer Service which states that:

• Two thirds of retailers consider ‘customer switching’ as a significant threat to their future sales whilst a third consider this customer behaviour as the biggest single threat to their business.
• However, three quarters of the businesses surveyed believe that the delivery of good customer service is an essential differentiator in the current economic environment.
• This is echoed by 83 percent of customers surveyed who said that the quality of service that they receive is very important to them when it comes to retaining their loyalty as a customer.

That doesn’t mean that you have to offer the lowest prices and the best service to succeed. It is important to point out that whilst customers are looking for competitive prices many are not willing to sacrifice service over price. I wrote about this on my blog a while ago where I talked about an article on mycustomer.com, where Right Now CEO Greg Gianforte quoted an interesting poll from Harris Interactive:

“According to their research, some 84% of customers would be prepared to pay 5% over the standard rate for a superior customer experience, 62% would pay 10% more, 25% would pay 15% more and 11% would pay 25% more.”

What I am not saying is that we all should put our prices up (although for some businesses that can be a great growth strategy). What I am saying is that when we develop our customer service we must understand what is right and best for our customers.

Customer service should not always be about making things fancy or delightful as that’s not what everyone wants and sometimes it’s just not appropriate. Sometimes customer service should about making things easy or familiar.

Why easy? Well, we are all busy so making something easy and quick and saving them time and hassle can be the best gift we can give to someone. Would you value that? I would.

What about familiarity? Where’s the value in that? As customers we are people too. So, why do we like familiarity? Because it’s understood. It feels less risky. Would you value that? I would.

In the end, for some businesses great customer service may only need to save us time and feel risk free, particularly with your existing customers (your most important asset).

When you are thinking about improving your customer service in your business are you over thinking and complicating it?

What exactly is Crowdfunding?
The idea behind crowdfunding is a relatively simple one. You have a business idea or want to grow your business but need money to make this happen. Visit your chosen crowdfunding platform, create your pitch, set your financial target, and promote your project to anyone online or offline who you think might want to invest in it, for example family, friends, clients, suppliers, twitter followers, linkedin (you get the idea). You offer rewards (traditional Crowdfunding) or a share of equity/revenue (commercial Crowdfunding) in return for the investment. When you reach your target, you get your money and get delivering on all those promises.

Sounds simple enough! So once your project has been listed you sit back and let the money roll in?
Alas, nothing could be further from the truth. In fact if you haven’t already been building your profile and marketing to your target audience before you post you’re going to have to work flat out to raise the funds you need. The onus is very much on YOU to promote your project and get the investors in.  At the time of writing this blog 31 projects, that’s 67% of those listed currently on the commercial Crowdfunding site Crowdcube® have 10% funding or less (many at 0%). Looking at some of the successes on the site it’s not difficult to spot the more established companies securing their investment fairly quickly (Kammerling’s £180k; The Rushmore Group Ltd £1m).  I’m not saying they didn’t have to work to secure their investment but a more established brand is likely to have a head-start.

How much does it cost to post a project?
At the current time the majority of sites don’t charge to list your project, but do  take a fee when projects reach their investment target. The average seems to be around 5% of the target achieved.

What do I have to offer in return?
Different sites have different rules so be clear about this before deciding whether to part with equity or offer rewards. Rewards (or ‘perks’ as they are called on some sites) could be anything relevant to your project such as free tickets to a show to an acknowledgement on a website or free/discounted products depending on how much is pledged.  Crowdcube® require you to release equity in return for pledges so you’ll need to make sure you have the right company structure for this and think carefully about how much equity you’re prepared to offer.  Most sites have an area where you can interact with investors and let them know how plans are progressing.

The art of pitching
Creating a memorable pitch (usually in video format) is a crucial part of the Crowdfunding process and it’s probably true to say many small businesses don’t have spare video footage hanging around that can be used. Even if you did, you need to know how to make your video appealing to potential investors and get your message across in a very short space of time.

You have to remember that whilst the Crowdfunding websites are providing a platform for you, that is all they are doing. It is YOU who has to put the work in to promote it, market it and reach your intended audience. You’ll be competing against plenty of other businesses so creating a compelling pitch, sometimes in less than a minute, can be a real challenge.  It’s worthwhile looking at the different sites and watching the videos of those projects who have secured 100% funding to get some ideas for your pitch. It may even be worth having a chat with one or two of them to find out just how much work they put in ‘behind the scenes’ to reach their target.

Dribble Delights – an example of a small business Crowdfunding
I caught up recently with Cheryl Ryder owner of Dribble Delights who currently has her project posted on Bloom VC a site which allows you to ‘make a promise’ to investors in return for their money. I asked her about her Crowdfunding experience so far.

Cheryl’s idea for a range of dairy-free foods for babies and toddlers stemmed from her own experiences as a Mum of a now 3 children, all of whom are dairy-intolerant. She became exasperated at the lack of choice on the shelves when it came to party food and treats in particular.  She entered the company into The Pitch 2011 competition with just an idea and became one of five finalists in the Scottish heat. This spurred her on to take the idea forward but as is often the case, funds were needed to turn it into a reality. Enter Crowdfunding.

“It seemed like a good idea” said Cheryl “we had nothing to lose and everything to gain by trying to raise funds this way”. Although Dribble Delights have not yet reached their target funding (they have 30 days left but have so far secured just 3% of their target £7300), Cheryl is keen to point out what a positive experience it has been for them and the value of using the Crowdfunding platform to get their message out there.

“If anyone enters Crowdfunding simply to get money then they’re fools” said Cheryl. “It’s a bonus if you get your money but the exposure and opportunity it presents is priceless. We’ve had amazing coverage and recognising  we’re operating in a very niche market, but being able to reach that, ask questions and effectively test out what we’re doing has been incredibly helpful”.

Cheryl isn’t put off even if they don’t raise their funds in the next month, but feels that the most successful projects are those who have been working on building their market well in advance of posting their project and already have a following.

Making your ideas public
I asked Cheryl whether she had any concerns about drawing attention to her business idea before it was off the ground in case somebody came along and copied it. As her company was already very much in the public domain having been a finalist in The Pitch 2011 it wasn’t really an issue, but for others it could be so you have to balance whether the exposure with potential financial return balances out or outweighs the possible risk of someone with deeper pockets taking your idea and turning it into reality before you have chance to.

Here’s my summary of the ups and downs of Crowdfunding for small business:

Some good reasons to choose Crowdfunding:

• More straightforward (and less expensive) to raise finance than through Business Angels/VC
• An alternative to bank finance which is difficult for small business to secure
• Free PR for your business – gets your message out there
• Positive endorsement from potential clients
• Builds future buyers database

Some things to think about:

• Waiting time to know if you’ve raised sufficient funds to go ahead
• Lack of good contacts, networks and mentoring that normally comes with external investment
• Risk of failure to gain investment
• Multiple investors to communicate with
• Risk of idea being copied

It’s up to you to decide whether its right for your business but it should certainly be given serious consideration.

Over the festive break I spent quite a lot of time ‘unplugged’ from the digital world thinking about how we can help ourselves stand out in front of our customers and, at the same time, help ourselves build better relations with past and present customers.

Here’s a few ideas that I would encourage you to think about doing more of:

1. Automation, particularly marketing automation, is becoming really popular and there is a lot of talk about how we can automate this and that, specifically, when referring to online transactions, communication, customer service etc. Whilst I understand the rationale and efficiency of these type of efforts, I often stop and think about what this would mean to me if I were the customer on the receiving end of automation and how would it make me feel. Obviously, it will depend on the type of business you are in and the volume and size of transactions you have but do take the opportunity to stop and ask yourself what is the cost to your customer relations of trying to automate as much as you can. Try to resist the temptation to dehumanise everything. Put the time and effort in and do it yourself. In doing so, you will automatically personalise it and it will make you stand out.
2. If you want to make people feel good about your business, make it less about the business and more about them. Here’s a simple idea: Pick up the phone/meet more customers even just to say ‘Hi’. You never know what will happen.
3. We live in a digital age but don’t you get the feeling that you get a little overloaded from time to time with all the emails and web-based stuff that you see? How about winding back the clock a few years and try to do less by email and more by letter or postcard. We all love getting postcards and letters, right? Excited, I came across a great web-based service and set of applications for Android, iPhones and iPads called Touchnote that can help with that. What they do is allow you to upload pictures and images, write a personal message and they will post a postcard to a single or number of participants. Obviously, you have to pay for this service but what a great way to stay in touch with some of your customers and make you stand out at the same time.

What do you think? What would you add that has helped you stand out and build better relations with your customers?

So what measures can you put in place to avoid being a negative statistic, giving your business a better chance of doing more than just surviving?

Do your research Yes, I know it sounds boring but researching at least the basics about your market (e.g. trends, scale), target groups (where they spend their money and time), and competitors is essential to inform the rest of your business plan.

How are you helping the market? For most businesses to succeed you need to have a pretty clear idea about what problem your business is providing a solution for and/or what need you are meeting. If you’re thinking of entering an already busy market, consider how you’re going to differentiate your business from competitors. What are you going to do that’s better?

Keep listening and talking to customers This sounds obvious but it’s surprising particularly during the early years how we can be so focused on getting the business off the ground, learning the ropes and managing day-to-day that we forget the most basic of requirements for a successful business to listen to and talk with your customers. Create an authentic and meaningful relationship with them to engender loyalty and make sure you’re meeting their often changing needs.

Don’t take everything on yourself Easy to do in the early days when money is often scarce, but take a long, hard, and honest look at your skillset and time available. Consider outsourcing anything you’re not so good at. Doing your accounts is an obvious one (particularly if you’re Limited company) but help with administration or sales could be equally valuable. Ensure your network of colleagues complements your own skills and knowledge and don’t forget to keep an eye out for collaborative opportunities with complementary businesses – so much more can be achieved with a collaborative effort

Avoid starting with debt Being under-capitalised is one of the key reasons why businesses can fail. If your cash flow is poor to start with you could face an uphill struggle making the figures stack up. If you’ve done the figures and are short of money to start up take a look at some of the alternative funding sources such as crowdfunding (I’ll be writing a blog about this very soon) or even for small amounts your local credit union.

Find a mentor Many new initiatives that have started in the last year encouraging start-ups and existing businesses to find and benefit from a mentor. Some of these are volunteers and others charge a fee. Recent evidence suggests 70% of mentored small businesses survive longer than 5 years (double the number of non-mentored enterprises) so finding a mentor or coach isn’t really an option anymore, it’s essential.

Consider finding a Non-Executive Director This option isn’t for everyone however if you have genuine aspirations to grow your company quickly but need investment and skills to do that, you may want to consider finding an Investing Non-Exec. Once the domain of large corporations, an increasing number of start-ups are now choosing this route to add credibility to their management team as well as much needed funds and contacts. You can read more about this with some case studies here.

Test-trade or work 5-9 Thousands of people right now are holding down full-time jobs whilst starting a business of their own. They do this by working what is commonly referred to as the ‘5-9’ shift although in reality of course the hours are much longer! Test trading in a small way and/or working 5-9 can be an excellent way to find out a) whether you’re suited to being self-employed (it really isn’t for everyone despite what you may hear others say!) and b) help you determine basic information such as whether there really is a market for your business and if so how much people will be prepared to pay for your product/service.

Whatever your situation and whatever you decide to do, I wish you every success in 2012 and beyond.

The top 5 tips weekly post is always full of hints and tips for small, home & micro business owners.

1. Use energy efficient lighbulbs in your workplace and take advantage of natural light wherever possible.

2. Recycle any waste that is generated by your business. Try to also reduce your waste output wherever it is possible by cutting down on needless waste like paper cups.

3. Encourage teleworking within your business if it is possible to do so. There is little benefit to meeting face-to-face with your staff that cannot be achieved through video conferencing and phone calls.

4. Try switching to more environmentally marketing techniques. Ditch those pointless paper flyers for email marketing and social media campaigns.

5. Make a concerted effort to make your workplace more energy efficient. Ensure workstations are at the very least placed into power-saving sleep mode at the end of the day and try to unplug other office items like printers, copiers and appliances.

The first (Huge rise in insolvencies, but London fares better than rest of the UK) was from Londonlovesbusiness.com and looks at the November statistics compared to the same time last year. The graphic below is from their site graphs the Experian data.

The second (North/South business insolvency divide begins to widen) was from Business Matters and looks at the month on month data over this year.

There were a few things that occurred to me when I saw these two articles:
1.    Both articles had the same data but came up with two very different stories
2.    Don’t always believe what you read in the press.
3.    Both are right and not right at the same time.
4.    Everyone has their own agenda.

My Christmas wish for all of us in business: Read press like this less, talk to friends and your trusted advisors more, be more open, ask for help early and even if you don’t need it and let’s work together to make sure these statistics (whichever ones are true) don’t get worse.

What is Factoring? How can it help my business?

Factoring is a business funding solution that enables you to release up to 90% of the cash in your sales ledger within a very short period of time, say 48 hours. It closes the cashflow gap between when an invoice is raised and when an invoice is settled by the customer. With business factoring, the outstanding invoice is used as the principal security against which the funds are raised.

In the UK, around 42000 businesses currently benefit from factoring as they no longer have to wait up to 90 days to get paid by their customers. In most cases, the factoring company takes full responsibility of your credit control, allowing you to trade freely. Factoring could be administered confidentially whereby your customers are unaware of a lender’s involvement.

With a factoring facility in place, your business can cover overheads such as rents, staff and equipment without having to wait for a late-paying customer to settle their invoice. Your business’ cashflow is improved significantly and you can take advantage of early supplier discounts.

Disadvantages of approaching lenders directly

There are two possible options for any business looking for a factoring facility – to search for a lender themselves or to go through factoring brokers. Though a straight-forward option, approaching lenders directly could be disadvantageous as shown below.

Time consuming: When applying for a factoring facility, businesses often have to get quotes from potential lenders within their sector. They will need to give the same details to each and every lender they apply to. So even after you’ve conducted some research on potential lenders, there’s a bigger job ahead of you.

Lending Criteria: There are several factoring lenders, each having specific pre-eligibility criteria for the businesses they lend to. For instance, not all lenders offer a factoring facility to the construction industry. This makes it difficult for businesses as they might get turned down by the several lenders they approach.

Variety of lenders: In the UK, there are several factoring lenders, ranging from high street banks to independent lenders. Most lenders will tend to specialise with businesses in certain locations, industries or of a certain size. This makes it very difficult to shortlist the potential lenders suitable for your business.

Competition between lenders: It could be very difficult trying to compare the rates charged by most lenders as most lenders present and market their costs in different ways.

Risk of termination: You can easily tell what level of service you’ll receive as every lender often describes what to expect of their services. However, if it turns out not to be as expected, you may be committed to a lengthy agreement and in some cases expensive cancellation fees.

Benefits of using a factoring broker

A factoring broker is a ‘middle-man’ between a business seeking a factoring facility and a factoring lender. They can put you in touch with the right factoring lender for your business and offer the following benefits:

Preferential charges and discounts: Some experienced brokers have established a solid relationship with factoring lenders. In return, businesses such as yours could have access to preferential rates and special offers. Some factoring brokers for instance could arrange for a rolling contract period, with no additional charges whereby customers can terminate the agreement at any time within the set period, say 3 months.

Free Quotes: Most factoring brokers offer you the chance to get online quotes instantly. It often requires very limited relevant information on your business and these quotes will reflect a range of lender deals. By filling a quote form, very often you could get a response on the same working day.

Offer condensed experience: Experienced brokers have helped so many firms find the right cash flow solution which means that you are unlikely to be presenting your broker with a situation they’ve not dealt with before. Factoring brokers often have a deep understanding of the different factoring options available. Your particular circumstances will be unique but it’s likely that the broker will have helped organisations with similar issues in the past.

Access to expert advice: Factoring brokers understand the needs of both parties and will identify the most suitable lender(s) on their panel to match your business’ needs. They will be able to offer you good impartial advice on a range of services. A good broker should be aware of how flexible lenders can be and advice you on the risks to avoid. You’ll be advised on the best value and you could have access to the most affordable deal.

Strong relationship with potential lenders: Factoring brokers work with a network of lenders and allocate the most suitable lenders for your business. This is after taking into consideration your business’ size, industry and location. Factoring brokers can save you a great deal of time, effort and money by finding you the most suitable lender deals.

Free Consultation Services: Factoring brokers usually don’t charge you a penny for using their consultation services and advice – it’s free to speak to them. Their fees are paid by the lenders and it’s in their interest to help you find the best deal.

GUEST BLOG: This business advice article was provided by Touch Financial, the Factoring specialists.

However, one of the things that I find when I talk to business owners is that they are often confused about what sort of activity they should be getting involved in in online and social channels. As a result, they often get caught up in how they can maximise their number of fans or followers. But, more fans and followers don’t necessarily mean greater word of mouth or more sales and greater profitability.

Let’s be clear. Sharing is not new. People have been sharing great companies, cool stuff, tips or deals with their friends and family since time began. However, what is new is that it’s getting a whole lot easier to do so. So, as a business, to tap into the sharing potential that surrounds your business and to get the most out of sharing, word of mouth and recommendation for your business it is becoming increasingly important to not just understand and engage your customers but also those people that are finding and sharing your business with their friends and contacts in the online world.

A recent study of US and UK consumers by the folks at Beyond looked into this very issue. Here’s some of the things that they found out:

• Over 65% of sharers, share because they think it will be relevant or helpful to their friends
• There are 7 different types of sharer in the UK
• Before embarking on any new social marketing activity it is important that the business understand their customers journey
• Different online channels exert different levels of influence depending on the level of risk (involvement) on the part of the customer. For example, when researching a high risk (involvement) purchase like a car, customers are more likely to look to and be influenced by review sites, search engine results and the business’ own website rather than other online channels.
• When it comes to sharing, email is still king

You can learn more by checking out the full study here or take a take a look at the infographic that they produced here.

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