THE MANY AREAS OF BUSINESS FUNDING

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What is the best business funding for you will depend on your personal circumstances, your business circumstances and your approach to risk taking.

Although writing a business plan isn’t essential to secure funds, it is something I advise all my clients. At the very least it will give you clarity and enable you to focus on and achieve your business objectives.

So many of my clients have experienced that ‘chicken and egg’ situation, where we know we need to invest to grow but don’t have the time to generate the funds. This is where it makes sense to seek external finance. It could be that you’re a start-up and need extra administration, marketing or other support. Finance could make all the difference and enable you to generate more business and profits.

 

Here’s a breakdown of the funding available:

  1. Invoice discounting and factoring

Typically the financier gives you a percentage of the value of the invoice upfront, while you wait for payment. How much varies dependent upon the lender and industry sector.

  1. Invoice trading

Here lenders, unlike invoice discounting and factoring, allow you to select which invoices you use to take out finance.

  1. Venture capitalists

You’ll perhaps have some idea of how venture capitalists work, if you’ve watched BBC’s Dragons’ Den. Venture capitalists usually invest other people’s money, and look for a ten-fold increase in the business value over a three-year period. They don’t usually invest in start-ups because of the risk involved… unless they are confident about the product opportunity, market opportunity and management ability.

  1. Business Angels

These are wealthy individuals looking to invest in companies. I would recommend searching on line for ‘angel investment network’, a website which connects UK entrepreneurs with angel investors.

  1. Peer lending

Here you can pitch to multiple lenders via online platforms. You’ll need financial forecasts and a business plan – see my other blogs for guidance.

  1. Crowdfunding

This is similar to peer lending, but you’ll have to give investors part of your equity or provide ‘rewards’.

  1. Merchant cash advance

A loan that’s based on the income you receive from debit and credit card payments. It’s repaid via future card transactions as an added percentage.

  1. Short term cash loans

If your business is profitable you could get about 50% of your average monthly income, from your bank. The loan is repaid from the bank account.

  1. Trade finance

This loan helps bridge the gap between you paying your supplier for stock or materials and getting payment from your customer. The lender pays the supplier direct and recoups the funds when your customer pays.

  1. Equity release

You might be able to secure between 50% and 70% as a loan by the lender putting a charge on your property.

  1. Asset refinancing

You can raise funds by refinancing assets, such as vehicles and equipment, under new leases. This can generate large sums of cash quickly.

  1. Friends and family

Borrowing from people that you are close to, is not always a good option… unless they are millionaires! You wouldn’t want them to lose their money.

  1. Overdraft facilities

Bank overdrafts are an option if you’re profitable and have a good cash flow. Having an overdraft will cover you for an emergency or temporary blip.

  1. Bank loans

You’ll need to be prepared to offer a personal guarantee or assets. Banks are more likely to lend to companies that have been trading profitably for a few years. The Enterprise Finance Guarantee (EFG) is a government-backed scheme, which means some business owners can access bank loans, even if they’ve been turned down elsewhere.

  1. Business grants

Government bodies offer grants towards, for example, training, taking on staff, development and research. Search online for: ‘Government business finance support finder’.

  1. Soft loans

These low-interest loans are available through government bodies and charities. Search online for ‘start up loans’, ‘big issue investment’ and ‘prince’s trust’.

I hope this gives you a good overview of the funding available. Of course many start-up business owners use their savings, or credit cards, or remortgage their homes.

Please contact me if you’d like further help or see my other blogs and videos for loads of great free business advice.

HOW TO CREATE A BUSINESS PLAN

business-plans

Today, I’ll be talking about the importance of business plans and how to draft one.

All too often, business owners start their businesses without creating a business plan. This is a mistake. A business plan will allow you to probe your ideas to see whether your business is viable. It will save time and stress and is worth all the effort.

It’s an important and strategic management tool that gives your business a clear vision, goals and targets. It’s so much more than a document required by banks and other sources of finance. It helps your staff know what to do, it lays out responsibilities and deadlines.

Here are my top tips on drafting your business plan:

  1. Don’t make it too long
  2. Include important information
  3. Use plain English, so that it is fully understood
  4. Be SMART – specific, measurable, achievable, realistic, targeted and time-bound
  5. Ensure it’s easy to act on.

When drafting your business plan, make sure it’s tailored and fit for purpose. My clients typically seek my help in preparing business plans for start-ups seeking finance, as well as more established businesses planning for growth.

There are seven main sections of a business plan: the executive summary, market opportunity, competition, the team, the business model and financial projections.

Executive summary

This is a statement that summarises the key points, and should be written after the rest of the plan. The executive summary should include:

The business concept – this describes the business, products or services, the market and what makes you different from competitors. This is your so-called ‘elevator pitch’. It briefly details why customers will want to buy from you. Also include your vision and mission statements

Financials – these are key financial points such as income, profits, if finance is needed and how much. It states how you’ll make money and use funding

Current information – this states who the owners and managers are, any past trading history, and money invested in the business.

Market Opportunity

Do your research! What’s your target market? How big is it?

Is it growing?

What are the strengths, weaknesses, opportunities and threats? This is important. If you’re going to pitch to investors, you have to know this information inside and out. If there isn’t a market for your products or services, you don’t have a business!

Consider how you’ll market your business. What works best for your target markets?

Is it direct sales and referrals, advertising, PR, digital and social media or a mix?

The competition

It is vital that you research your competition. Where are they? Who are they? What are their products or services? How much do they charge? What’s their market share? What are their strengths and weaknesses? Where do you position your business in the market? How can you differentiate your company from the competition?

Your team

Who are the people that are going to help you make your business succeed? If they’re already working for you, include brief biographies or CVs in the Appendix. If you haven’t yet recruited, include profiles and job descriptions. Explain their skills and responsibilities. Put team members into sections, for example research and development, production, finance and administration, plus marketing and sales. Decide how many people you need and when.

Business model

Here you should describe all your income streams, including any assumptions, for example:

  • What are your prices and how are these calculated?
  • How will you deliver your products? Direct, through a distributor, or online?
  • What are your cost elements, including packaging and distribution?
  • What could cause costs to fluctuate?
  • What are your overheads such as rent, utility bills and machinery?

You should name your suppliers, and explain how your business will grow. Detail the manufacturing procedure, product components, and all related costs including staffing.

Financial projections

Include three or five year forecasts for profit and loss, the balance sheet and cash flow. Also include a break-even forecast that shows how much income is needed to cover initial costs. Please see my other blogs for more on future projections.

In summary

It is vitally important that business owners prepare a business plan, which is well thought through. It is also vital, that a business plan is seen as a living document with real strategic value, and one that needs regular review and updating.

To quote Tim Berry, President of Palo Alto Software: “After you have buffed your plan to a shine, don’t file it away to gather dust.

A business plan is the beginning of a process. Planning is like steering, and steering means constantly correcting errors. The plan itself holds just a piece of the value; it’s going back and seeing where you were wrong, and why, is what really matters

If you’d like help in preparing a business plan, please get in touch

CREATING AND UNDERSTANDING A BUSINESS FORECAST

Today I’m talking about business forecasts – an important part of your business plan. Forecasts help you to predict your businesses income and costs.

Business owners and managers often tell me that working out a business forecast can be tricky. Of course none of us has a crystal ball, but we don’t need to know exact sales figures to create a forecast.

 

A business forecast gives us something to aim for and measure against. They help us to grow our business and ensure they’re profitable.

A business forecast is made up of three parts:

  1. Revenue
  2. Direct costs (this is also called ‘variable costs’ or ‘costs of sales’)
  3. Overheads (also known as ‘fixed costs’)

My advice is to look at your overheads first

This should be done before calculating your revenue. Write down your annual costs. These might include:

  • Rent and business rates
  • Utility bills, including broadband, phone and mobile phone contracts
  • Legal, security and insurance costs
  • Office running costs
  • Marketing costs, including advertising, digital and social media
  • And salaried staff costs

Think about your plans for the coming year and any additional overheads. For example will you need to replace any machinery or employ more staff?

 Direct costs

Also known as variable costs, this covers the actual cost of each sale, whether it’s a product or service. Examples of direct costs include:

  • Materials
  • Packaging
  • Fuel
  • Storage space
  • And direct labour

By adding these up you’ll know how much each product costs to produce, or how much it costs you to deliver a service. Once you have this cost you can calculate profit margins and charges.

For example a maintenance company that charges £50 per hour needs to ensure that this covers all costs and creates a profit. Direct costs might include wear and tear on the vehicle, fuel, the worker’s cost per hour, protective clothing, plus the employer’s part of National Insurance.

Revenue

You’ll need systems in place to ensure that your revenue is calculated accurately, and that you have good cash flow. If you’ve been trading for a number of years you can use previous trading history as a basis for your business forecasts.

I always advise my clients to be conservative when forecasting their income. Don’t forecast based on your dreams or wish to purchase a new Porsche! My clients draft a number of forecasts ranging from a ‘worst case scenario’ forecast to those based on realistic growth.

Base at least one forecast on your ‘current gross margin’ – that’s the difference between your direct costs and your total revenue, as a percentage of total revenue.

Although we don’t know for certain what the future will bring, we can do a PESTLE analysis to understand some of the threats and opportunities we can expect. This covers political, economic, social, technological, legal and environmental influences.

Planning for growth

By looking at your business in this detail you’ll be better prepared if growth comes quicker or at a much higher rate than expected.

If planning for growth, ensure that you calculate the additional costs of extra staff, recruitment costs, National Insurance, pensions, training and benefits. You may need to consider bigger premises, and associated costs.

In summary

Forecasting cash flow is a must for any business. Some companies revise their forecasts on a quarterly basis, bringing in the actuals for the previous months. This gives the business a rolling and more accurate management tool.

My strong recommendation is to forecast as far into the future as possible, to ensure you’ll have more warning of leaner times.

If you’d like help setting up forecasts, budgets or cash flow, please get in touch

TIPS ON CREATING BUSINESS PLANS

Business Plan

Sometimes business owners rush ahead and start their businesses before creating their business plan, to see if their ideas are viable. Actually I expect most business start this way.

Business plans will always save time and stress later on and are worth the effort at the start.

A business plan is not just a tool to make getting funding easier, it is a valuable document that gives your company goals and targets to aim for and a clear vision that you want your organisation to follow. It helps your teams know exactly what they need to be achieving. It can lay out responsibilities and deadlines.

Don’t make your business plan too long. You should impart the important information as clearly and as simple as possible. It should be specific, realistic and easy to act on.

Your plan may have to be tailored depending on what the business purpose for that plan is. A business plan that is required by a start up to get funding, will differ from  a plan that is an internal document that is ever changing, that the business uses for growth.

Sections of the business plan

1)      Executive Summary – This is a statement that summarises the key points of the plan. Write this section after you have wrote the rest of the plan. It should include:

a)      The Business Concept – Business description, products and services, market and what makes you different. This is your elevator pitch. Why will customers want to buy from you? If you have a vision and mission statement, include that here.

b)      Financials – Key financial points summary i.e. income, profits, if funding is needed how much. How will you make money?  How will you use the funding?

c)       Current info – Who are the owners and managers of the business, any past trading history, amounts already invested into the business.

2)      Market Opportunity – Do your research! What is your target market? How big is your target market? Is it growing? What are the threats to your business and how will you counteract these? This is a very important section of your plan. If you are going in front of investors to pitch, you have to know this information inside and out, because if there is not a market for your products or services, you do not have a business! How will you market your products and services? Advertising, PR, sales team, social media?

3)      Competition – Check out your competition. Where are they? Who are they? What are their products? How much do they charge? How much of the market share do they have? What are their strengths and weaknesses? Where do you position yourself in the market?

4)      Your Team – Who are the people that are going to help you make your business succeed? Include CVs, if you already have them working for you, or profiles and job descriptions, if you have yet to employ them. Explain what skills each person has and what their responsibilities are. Put the team into sections – marketing & sales, production, research & development and administration, for example. How many people do you need and at what point in the future do you need them?

5)      Business Model – Here you should describe all of your income streams and any assumptions you are making. What are your prices and why? How will you deliver your products and services? Direct, through a distributor, online? You must describe all the cost elements and explain what might make these costs fluctuate. If you are already dealing with specific suppliers name them here. Explain how your business will grow. What are your strengths and weaknesses? If you are manufacturing a product have a detailed procedure that sets out how the product is made, what are its components, which team members time will be taken up by making the product, and details of all the related costs to get that product completed. Packaging and distribution costs. Think about any travel expenses needed. What about rent, marketing, electric and gas, payroll, insurance, etc.? Is there any equipment needed to manufacture the products and what will this cost? What about the maintenance and repair of this equipment.

6)      Financial Projections – It is good to include 3 or 5 year forecasts for profit & loss, balance sheet and cash flow. Also include a break-even forecast that clearly shows how much income is needed to cover all your initial costs.

The financial projections section really needs a lot more explanation, and I covered forecasts in a recent blog, so take a look.

In the words of Tim Berry, president of Palo Alto Software, “After you have buffed your plan to a shine, don’t file it away to gather dust. A business plan is the beginning of a process. Planning is like steering, and steering means constantly correcting errors. The plan itself holds just a piece of the value; it’s going back and seeing where you were wrong and why it matters.”

If you would like help with putting your business plan together then please get in touch. Check out the website or email enquiries@nozeyparkers.co.uk or call 0808 123 1399. I offer a free initial consultation so contact me if you would like to take advantage of this offer.

 

Tina Marie Parker, business advisor and trouble-shooter, has been helping businesses for nearly 30 years. From start-ups to succession planning. From companies going through rapid growth to companies desperate to see some growth. She helps them thrive and survive. Great business advice and hands-on support for your organisation, getting the desired results, fast.

FIND FUNDING FOR YOUR BUSINESS

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There really is a “chicken and egg” situation in business that affects us all. We all get to that stage when we know where we want to take our business but we do not have the funds or resources to action anything.

You need that admin/PA/sales person to take all the back office stuff off of you, so you have the time to grow your business and your turnover, but you do not have the funds to pay for one. You don’t have the funds to pay for support because you don’t have any time to market your business efficiently!

Sound familiar? I know I have been there.

In this blog I want to advice you on where to go for that extra funding so you are able to grow your business as you want to.

If you don’t already have a business plan then I suggest you put one together. (My next blog in 2 weeks’ time will explain how to put a plan together). They are not always necessary for all types of funding but will help ease the process if you have one and will also give you better focus and clarity on your company’s objectives.

Here’s a breakdown of types of funding available:

1)      Invoice Discounting and Factoring – If you invoice your customers and give them credit terms to pay, then this might suit you. Once you have invoiced a customer you can ask the financier to give you a percentage of the value of the invoice upfront, while you wait for payment. The financing company will probably want to take control of all of your customers’ debts and will not allow you to “cherry pick”. The percentage, of your invoice values, that you can get up front, will vary between lender and industry sector.

2)      Invoice Trading – Some lenders, unlike above, will allow you to pick and choose as to which invoices you finance against.

3)      Venture Capital – Venture capitalists are in charge of investing other peoples’ money. They really weigh up the risk of investing for their clients. They don’t usually invest in start-ups unless the product opportunity, market opportunity and management ability are all proven. They are normally looking for a tenfold increase in the business value over a three year period. It’s a bit like “Dragons Den”!

4)      Business Angels – Wealthy individuals that are looking to invest in other companies. There are numerous websites but this one is really good https://goo.gl/bWvcHy .

5)      Peer Lending – This is done via online platforms where you can pitch to multiple lenders at a time. You will need financial forecasts (see my last blog) and a business plan.

6)      Crowdfunding – Similar to peer lending but you have to give up part of your equity if you want people to invest.

7)      Merchant Cash Advance – This is great if you take debit or credit card payments. You have a loan that is based on the normal income you receive from card payments. It is repaid via future card transactions as an added percentage.

8)      Short Term Cash Loans – If your business is profitable you may be able to get around 50% of your average monthly income, from your bank. It is repaid daily or monthly, direct from the bank account.

9)      Trade Finance – For larger transactions, if you get an order from a customer and it requires you to buy extra stock or materials, in order to fulfil that order, you can get funding to bridge the gap between you paying the supplier and the customer paying you. The lender will pay the supplier direct and will recoup the funds from you when your customer pays you.

10)   Equity Release – If you have equity in property then you might be able to get 50% to 70% as a loan by the lender putting a 2ndcharge on the property.

11)   Asset Refinancing – If your business has vehicles, plant, equipment, etc.  You can refinance the assets under new leases to generate quite large sums of cash quickly.

12)   Friends and Family – Borrowing from people that you are close to, is not always a good option unless they are millionaires! There is always a risk in business that your venture does not work out and the people you care about will then lose their money too. If your business is failing, it is harder to walk away if you know you have amounts you still owe to family and friends.

13)   Overdraft facilities – Bank overdrafts maybe an easy option if your financials prove you make profits regularly and your cash flow is buoyant. I.e. you need the overdraft in place for emergencies that may occur to cover you for the temporary blip.

14)   Bank Loans – Banks are more likely to lend to companies that have been trading profitably for a few years and have assets that they can put a charge on, should the business fail. They also usually ask the directors of a business for personal guarantees. The Enterprise Finance Guarantee (EFG) loan can be offered by banks, and is a government backed scheme to allow lending to companies that have been turned down for other lending.

15)   Business Grants – These are given by government bodies towards things such as training, taking on staff, development, research, etc. https://www.gov.uk/business-finance-support-finder/search

16)   Soft Loans – These are also done via government bodies and are loans granted but at a very low interest rate. Check outhttp://www.startuploans.co.uk for more info on funding. Other good sites are http://www.bigissueinvest.com and http://www.princes-trust.org.uk .

The majority of businesses finance the early days with their own money, either by using savings or putting items on credit cards or re mortgaging their home.

I hope I have given you enough ideas of where to look for the different types of financing.

If you need help with putting that business plan together to attract the right type of investor then please get in touch, or check out my blog.

Check out our website or ring on 0808 123 1399 or email us at enquiries@nozeyparkers.co.uk . The first 2 hours are free!

Tina Marie Parker, business advisor and trouble-shooter, has been helping businesses for nearly 30 years. From start-ups to succession planning. From companies going through rapid growth to companies desperate to see some growth. She helps them thrive and survive. Great business advice and hands-on support for your organisation, getting the desired results, fast.

UNDERSTANDING BUSINESS FORECASTS

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A business forecast should be part of any good business plan. Trying to work out how you think your sales will increase or how your workforce might grow can be tricky things.

Whatever stage you are at in your business, a forecast, or prediction, of what you think you will achieve, can give you something to aim for and measure against.

In this blog I will try to clarify the workings of a forecast and how to predict as accurately as you can what your income and costs will be.

A forecast is made up of 3 parts: Revenue, Direct Costs (or Variable Costs or Costs of Sales) and Overheads (or Fixed Costs)

My advice is don’t start with trying to work out your revenue. Look at your fixed costs or overheads first. Write down figures based on the annual costs.

You will have a rough idea of what your overheads or fixed costs are i.e. rent, utility bills, phone costs, legal and insurance, postage, advertising and marketing budgets, and salaried staff costs are.

Are you likely to need to purchase any IT equipment, furniture, machinery, vehicles, etc.? Will you take on more staff?

Your variable costs are the ones that are generated by you selling your products and services. These could be materials, packaging, fuel, storage space, direct labour, etc. You should work out how much each product costs to produce, bearing in mind all these factors, or how much a chargeable hour of time costs.

For example, if you were a maintenance company and you charged out at £50ph to your customers, the cost of being able to provide that hour would include the fuel in the vehicle, the wear and tear on the vehicle, the workman’s cost per hour, plus the employers part of the National Insurance, the protective clothing worn by the workman, etc.

When you start to look at your business in this much detail it will show you what you need to plan for if the growth does come quicker or at a much higher rate than expected.

If you have previous trading history than it is best to start with those figures and then predict what might change over the next few years,

When it comes to your income, be conservative. Don’t forecast based on your dreams. It is good, however, to do a “worst case scenario” forecast and also a better one based on realistic growth.

If you know what your current gross margin is i.e. what’s the difference between your direct costs and your total revenue, as a percentage of total revenue, then you should assume you will continue to operate at that rate, and base your forecast on that.

Obviously if you are planning for growth then you won’t just have increased sales figures, you will probably have the added costs of extra staff, recruitment costs, increase NI costs, don’t forget pensions and benefits, maybe a bigger premises, etc. You really need to think of everything that might be affected by any sort of growth.

Problems with forecasting are that if you are basing your forecasts on previous data then the conditions may not carry on in the future, and also you cannot factor in unexpected events i.e. floods, bank crises, war, etc.

So you might be saying, what is the difference between a forecast and a budget?

Budget – this is set before your trading year has started and is usually based upon previous years’ figures. It gives different departments a guide as to how they should be performing and monthly financial figures will be compared against it. A budget will list all income and expense items in a profit and loss format. Budgeting helps manage your business so your forecast figures might happen! Budgeting is a goal.

Forecast – Some forecasts do follow the same format as a budget, but can be just a guide or a list of “what if” scenarios showing top management the possible outcomes. Forecasts are what you want to happen. Forecasting is an educated guess.

Some companies revise their budgets or forecasts on a quarterly basis, bringing in the actuals for the previous months – a rolling forecast.

Forecasting cash flow, months into the future, is a must for any business. The further you forecast out, the better, as you’ll have more warning of leaner times. Asset purchases, VAT and PAYE payments will affect cash flow. For more details on setting up and understanding cash flow check out my blogs on the website.

If you would like help with setting up your forecasts, budgets and cash flow, please get in touch.

Check out our website or ring on 0808 123 1399 or email us at enquiries@nozeyparkers.co.uk. The first 2 hours are free!

Tina Marie Parker, business advisor and trouble-shooter, has been helping businesses for nearly 30 years. From start-ups to succession planning. From companies going through rapid growth to companies desperate to see some growth. She helps them thrive and survive. Great business advice and hands-on support for your organisation, getting the desired results, fast.