Category find funding

Entries 18 Total

Factoring for start-ups

Jan 30, ’12 6:14 PM
Author Stefan Töpfer (Editor) Categories Guest Blog, find funding

There are several types of business in the UK – but one thing every business has in common is a starting point.

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.

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Crowdfunding – could it work for your business?

Jan 18, ’12 7:21 PM
Author Lorraine Allman Categories Business Funding, Business Startup, Finance, Finance, Micro Business, Small Business / SOHO, find funding

Crowdfunding is becoming an increasingly popular method for small businesses and social ventures to raise much needed funds.  The map below gives you some idea of the scale of growth in Crowdfunding over recent years.  Interestingly, the same source indicates that 46% of all UK Crowdfunding platforms were launched in 2011 alone, so with the growth in such sites I wanted to write about the ups and downs of Crowdfunding from a small business perspective.
Worldwide map of Crowdfunding platforms

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.

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Benefits of using a Factoring Broker

Dec 21, ’11 3:33 AM
Author Stefan Töpfer (Editor) Categories Guest Blog, find funding

When looking for a property, you should ideally consult a property agency in order to secure the right property based on your requirements and resources. The same scenario applies to factoring. Factoring brokers are like the agency that aim to find the right financing solution to your business’ need.

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.

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Equity essential to finance new ventures writes the Financial Times

Sep 14, ’09 11:33 AM
Author Stefan Töpfer (Editor) Categories Finance, WinWeb, find funding

ft.gif Equity rather than debt holds the key to financing the future of the UK’s small business sector, according to the Association of Chartered Certified Accountants (ACCA).

The association’s small and medium-sized enterprises (SMEs) committee claims that economic recovery could be the shining moment for wealthy individuals who put money into early-stage ventures.

Read more @ FT.com

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Money – Small Business Quote of the Day

Sep 10, ’08 12:27 PM
Author newsdemon Categories Business Quotations, find funding

A small business quote a day keeps you thinking, inspired and entertained 

“Remember that time is money.”

Benjamin Franklin (1706-90) US politician & inventor, Advice to a Young Tradesman (1748) 

To find previous Quotes of the Day look here 

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Money – Small Business Quote of the Day

Sep 3, ’08 8:51 PM
Author newsdemon Categories Business Quotations, find funding

A small business quote a day keeps you thinking, inspired and entertained 

“Its’ clearly a budget. It’s got a lot of numbers in it.”

George W. Bush (b. 1946) US president, quoted in Reuters (5 May 2000) 

To find previous Quotes of the Day look here 

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Money – Small Business Quote of the Day

Aug 28, ’08 1:31 PM
Author newsdemon Categories Business Quotations, find funding

A small business quote a day keeps you thinking, inspired and entertained 

“When money talks, few are deaf.”

Earl Derr Biggers (1884-1933) US novelist, Charlie Chan in Honolulu (1938) 

To find previous Quotes of the Day look here 

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Small Business Start-Up Checklist – Financing Your Start-Up

May 7, ’08 5:24 PM
Author newsdemon Categories Business Checklists, Start-Up, find funding, start-up in business

A common barrier that a lot of people feel prevents them from starting their own small business is how to generate enough capital to get things up and running. A large number of SME owners end up working two or more jobs because they cannot afford to give up their previous employment whilst their new business is in its infancy. Although this is a necessary evil, it can only harm the performance of their start-up if they are unable to give it their full attention.  

These are the most common methods of financing a start-up:  

  • Personal Savings – The majority of entrepreneurs finance the bulk of the cost from their own savings. This has the benefit of needing no repayment but also could leave them without any further money to inject into the business
  • Banks – Nearly half of all start-ups take some form of loan from a bank. In recent years, banks have been handing out money very easily but this looks set to change in the current economic climate. Borrowing money is probably best avoided at this time, but if you decide to then think carefully about which bank to choose. A bank will probably expect you to risk some of your own funds before they give you anything. A strong business plan will be crucial in securing a loan
  • Friends and Relatives – Almost a third of start-ups have some contribution from family and friends. This group of people are – for some entrepreneurs – the only people who will have enough faith in you succeeding to actually invest. Their contribution may come in the form of a loan or possibly for some share of ownership. The main disadvantage to this sort of arrangement is that if your business fails it could also damage your personal relationships
  • Individual Investors – There are people who are willing to take a gamble and invest in promising start-ups. About a tenth of new businesses have had contributions from outside investors, usually in exchange for some percentage of ownership. These agreements can sometimes be very flexible depending on the individual and may need only last for a fixed term i.e. until the money is repaid
  • Government Loans – Although hard to get in the UK , it is common practice in many countries for Government’s to provide small business loans and grants to start-ups. This helps nurture the development of industries or can help re-vitalise one that is flagging
  • Venture Capitalist Firms – A very small amount of new start-ups opt to receive financing from venture capitalists. They are unlikely to invest unless they are guaranteed a big return and will be extremely demanding

If you are still unable to generate capital through any of these methods it can be helpful to attend a business school. At the school you will get to know like-minded people and they may be interested in going into business with you. In addition, most schools run business plan competitions that award funding to the best entries. 

For the previous stages of this checklist look here 

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Do you have concern for your business or only for yourself?

Apr 25, ’08 4:12 PM
Author Stefan Töpfer (Editor) Categories Employment, Entrepreneur, Failure, Green/Eco-Friendly, Outsourcing, avoid growing pain, be eco-friendly, be successful, bootstrap, do a reality check, find funding, outsource effectively, plan cash-flow

I had an interesting conversation about my view that management control over employees is a myth. I have believed for some time now that an office is often a total waste of money and completely unnecessary. Most of the time I’m told it’s OK when you work by yourself, but not if you have employees, as they need to be supervised and somehow “controlled”.

I have now been working for almost ten years from home, and most of my staff works from home too. Apart from being an eco-friendly way to work, it saves people time and frustration to travel in and around London to come to an office, where we all sit in cubicles or offices. In the days of broadband internet, Skype and OnlineOffice, there is no need for an office, even to have meetings.

Offices, like cars are are often nothing else but status symbols – what other reason can there be for a small business to have an office? If that is true then how is the office helping with your business, it’s a big expense. Seriously, if you do not have clients coming thru your office doors several times every day, why have the office. Even if you have, do really all your people need to be in the office every day? I guess not!

We are in an economic downturn, what is more important – your ego or your business – ask yourself that every time you walk into your office. I’m sure there a good reasons for some micro businesses to have offices, even so I currently can’t think of any, but I’m convinced in most cases a healthy bootstrapping and outsourcing mentality would be more beneficial for your business.

Unless the first business goal is to feed your egomania, you need to have a good hard look at your cost structure to survive in these times. — ST.

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How much money do you really need to start your micro business?

Feb 2, ’08 11:59 AM
Author Stefan Töpfer (Editor) Categories Finance, find funding

Starting from home and using bootstrapping techniques will save you money and help your small business to stay afloat. But you will need some money – the question is, how much capital will you really need.

To work this out you should do a cash-flow forecast, planning your income and expenditure for the next six to twelve month. Doing this on a per month basis is certainly a good start. Here are a few pointers to think about, when doing your cash-flow:

  • Don’t be too optimistic – make your plan as realistic as you can;
  • Turnover or Income – what happens if you turnover is less than expected;
  • Payment Terms – what if your customers pay later than expected;
  • Business Interruption – what if you are ill, or your co-workers are ill;
  • Holidays – the costs in your business keep on running.

You need to remember that cash-flow forecasting is not a exact science, it is a planning tool. There will always be a certain degree of error in your plan, and that is the interesting part. Now you can learn what went wrong and understand your business better, it will force you to rethink and face facts. Running a business is not gambling, it is taking manageable risks, and the aim has to be to minimise the risks to your home business as much as possible – cash-flow forecasting does exactly that.

You will be amazed what you can learn about the financial dynamic in your small business within one hour, that is often all it takes to get started. Once you know where your money is going and what benefit you derive from this expenditure, you can start thinking about different – more cost effective – ways to achieve the same result, and have a healthier small business in the process.

If you need help to start your cash-flow forecasting, use the WinWeb free cash-flow forecasting tool and ask our 24/7 support staff for help.

So, how much money do you really need? ST.

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