The value of money


Guy Bawden, practice manager at Harland Accountants’ St Austell office, explains some of the finer points of funding your business

At some stage all businesses will require funding, whether that’s initial finance to get started or an injection of cash further down the line to expand, improve or update an ongoing concern.

“If you would like to know the value of money, go and try to borrow some.” Benjamin Franklin

Although many sources of funding are available, it is worth remembering that borrowing does not come without a price and acquiring finance can mean giving up a share of your company or hours of reporting and administration, sapping time away from running your company and making money.

The funding you go for will be determined by the stage of your business’s development, the level of acceptable risk and terms and conditions of the loan. But before you start the key to success will be to produce a robust and thorough business plan that demonstrates solvency, viability and long term profit.

This should also show the ability to cope with altering conditions: eg if sales reduce by 10% and costs increase by 5% would the business plan still work? This provides funders with a margin of safety for their investment.

A business plan might seem a daunting prospect but this is where financial specialists can prove invaluable and once it has been produced it can be used to evaluate the most appropriate form of funding for your business.

The main funding streams available are:

  • Internally generated cash Such as raising additional funds against personal mortgages; this is often the preferred option but usually the least available.
  • Bank support Despite the current economic climate commercial banks are willing to support viable business plans, particularly if asset security can be provided.
  • Enterprise Guarantee Scheme A scheme devised to allow the majority of risk inherent in business lending to be taken by the Government, with the remainder being held by the primary lender, usually a commercial bank.
  • Commercial finance houses Operate in similar fashion to the commercial banks but generally willing to finance more risky projects for a higher return.
  • Convergence funding and grants One of the best sources of information on this area is Business Link, whose advisers specialise in the different forms of finance offered through both the UK and European government schemes.
  • Specific government loans The government offer businesses incentives to invest in certain projects by the provision of cheaper finance. An example of this is the Carbon Trust Loan Scheme where interest free loans are offered on projects that can substantiate a reduction of their carbon impact upon completion.
  • Business Angels/Venture Capital Individuals and groups who will lend money and require some form of control over the management of the business, this can be regular reporting or as an active member of the management team.

One of the most important aspects of funding is finding out who can help you access the most appropriate finance for your needs – a financial expert or accountant is often the best place to start.

Tel: 01726 74573