Raising Finance

Every business requires finance, whether it is just starting up or looking to expand and grow. Determining the type of finance best suited for your business development and identifying potential funding sources are crucial steps. If you are starting or have recently begun a business in the Nottingham area, AHACCOUNTANTS can assist you in the planning stage of raising finance.

Planning for Growth

1. Is Finance Required?

1. • While finance is often essential, it’s important to understand the implications. Additional funding involves a commitment to capital and interest payments, which must be carefully planned. Ensure your business can sustain any additional commitments related to growth or expansion, considering factors such as manpower, materials, and space.

2. Tapping Existing Resources:

1. • Before seeking outside finance, assess whether you can improve your working capital from within. Focus on minimizing stock and debtors, and evaluate how long it takes to bill customers and collect payments. Look for ways to expedite these processes. During periods of cash surplus, consider investing those funds in short-term deposits to generate income. We can provide guidance on these matters.

Business Plan

If external funding is necessary, a well-structured business plan is critical for success. This plan not only clarifies your project’s nature and funding needs but is also essential for any lending institution, which will likely require a comprehensive plan before providing assistance.

Your business plan should include:

• Objectives and aims of the business
• Purpose of the required funding
• Business ownership and history
• Management structure and responsibilities
• Product offerings and market share
• Sales plan and strategy
• Financial position, including detailed cash flow forecasts and historical accounts

Types of Finance

1. General Financing Options:

1. • Finance comes in various forms, so choosing the right type is essential. Onerous terms and inflexibility can hinder a growing business. Common sources of finance include bank overdrafts, medium to long-term loans, and mortgages, with interest rates varying significantly. Consulting with us before making a decision is advisable.

2. Specific Financing Methods:
   • Specific financing methods are available for acquiring assets or releasing cash from debtors. Consider the following options:
   • Leasing Assets
   • Hire Purchase
   • Outright Purchase
   • Debt Factoring
   • Invoice Discounting

Each method has its own advantages and disadvantages, including potential tax implications.

3. Other Financing Options:

1. • Explore government sources for potential assistance, which can come in the form of grants, loan guarantees, or enterprise capital funds. Regional or local grants may also be available. The British Business Bank, a government-owned company, aims to improve finance markets for small businesses and collaborates with banks, leasing companies, and venture capital funds.

Additionally, raising finance through issuing shares may be an option to consider.

Security

Lenders will typically require some form of security for any financing offered. The level of security sought may vary, so be cautious of lenders requesting unreasonable guarantees.

1. Fixed and Floating Charges:

1. • Most bank loans and overdrafts are secured with a fixed charge over land and buildings, along with floating charges over other assets, such as stock and debtors.

2. Personal Guarantees:

1. • For businesses with limited assets, security may come in the form of personal guarantees. Exercise caution when signing these guarantees, as they can be challenging to amend later. Ideally, personal guarantees should be limited by time or amount, as unlimited guarantees can pose significant risks.

3. Other Assets as Collateral:

1. • Other assets, such as life insurance policies, or taking a second mortgage on your home may also be used as collateral. Any security pledged should be considered carefully, and seeking advice is recommended.

How We Can Help

The method of obtaining finance will vary significantly based on:

• Amounts required
• Nature of the business
• Risk exposure for the lender
• Duration of financing needed

While generalizations can be made, individual circumstances require specific consideration. Investing time in formulating a funding strategy will not guarantee success, but it will provide a structured approach to guide your growing business.

Our experience and network can help you achieve the necessary financing to support your business growth. If you are starting or have recently started a business in the Nottingham area, AHACCOUNTANTS would welcome the opportunity to assist you in formulating a business plan and raising finance.