Funding a new business
Discussion
I'm looking at a new business (as always!). It's within an industry I have worked in and around for the past twelve years, and have access to impartial (supportive, but happy to tell me if I'm wrong, and also in a non-competing area of the industry) advisers with tens of years experience upon whom I can sense check ideas and indeed my business plan.
Speaking of which, the business plan is not entirely complete, but mostly there, it just needs tidying up. Financials stack up, all I need to do now is do some figures based on bootstrapping the business for early days rather than 'full-on' cost as if it were fully funded from day one.
And that's the rub. To do this will require funding, I am pretty certain I cannot fund it myself by bootstrapping as it requires skilled staff and resources such as vehicles (although I do need to absolutely confirm that). That said, once sales are being made, it should be a generally cashflow positive business.
I work as an independent business development/marketing consultant, and whilst I'm happy to prepare a business plan, the funding side of things is a real gap in my knowledge. Is it really potentially as easy as getting my business plan polished and realistic and sitting with bank managers? If any one can advise of thoughts surrounding funding a new business it would be appreciated. I appreciate the whole conveyor belt of cash>credit cards>family & friends>banks>external funders, and will of course review/attack all of the earlier options, but don't know the ins and outs.
Speaking of which, the business plan is not entirely complete, but mostly there, it just needs tidying up. Financials stack up, all I need to do now is do some figures based on bootstrapping the business for early days rather than 'full-on' cost as if it were fully funded from day one.
And that's the rub. To do this will require funding, I am pretty certain I cannot fund it myself by bootstrapping as it requires skilled staff and resources such as vehicles (although I do need to absolutely confirm that). That said, once sales are being made, it should be a generally cashflow positive business.
I work as an independent business development/marketing consultant, and whilst I'm happy to prepare a business plan, the funding side of things is a real gap in my knowledge. Is it really potentially as easy as getting my business plan polished and realistic and sitting with bank managers? If any one can advise of thoughts surrounding funding a new business it would be appreciated. I appreciate the whole conveyor belt of cash>credit cards>family & friends>banks>external funders, and will of course review/attack all of the earlier options, but don't know the ins and outs.
Hi Dave,
Good luck to you with the venture. Your endeavour is to be applauded.
Fro funding I would say you have two broad options:
1) Sell equity. The old saying goes that at this point your target market is - harshly put as - the 3 Fs, Friends, Family and Fools. You have no track record and no proven financials to refer to so debt may be difficult at this time.
2) Debt finance. The one exception to getting debt finance now is if you have an asset (preferably a property but other assets can work too) to offer as security. Don't expect to pay an APR of less than about 20% but you can get a loan up to 10 years this way.
HTH.
Good luck to you with the venture. Your endeavour is to be applauded.
Fro funding I would say you have two broad options:
1) Sell equity. The old saying goes that at this point your target market is - harshly put as - the 3 Fs, Friends, Family and Fools. You have no track record and no proven financials to refer to so debt may be difficult at this time.
2) Debt finance. The one exception to getting debt finance now is if you have an asset (preferably a property but other assets can work too) to offer as security. Don't expect to pay an APR of less than about 20% but you can get a loan up to 10 years this way.
HTH.
Thanks for the thoughts. I guess it does come back to polishing up the business plan and then just trying to find suitable candidates to approach.
As I say, I am pretty sure it's beyond my own reach to fund via bootstrapping as there is a big element of 'doing it right from the outset' to really keep up with the USPs of the business. As I mentioned I do need to go through the figures on a scaled back basis to see at what is the lowest point the business can start 'properly' (as I said, I know it works comfortably at higher overhead costs, but it's a case of balancing what can be trimmed on day one versus what is essential, but allows the business to grow effectively and not get stuck in a going nowhere circle).
I'd happily look at debt finance, but unfortunately don't have enough equity in the house or other suitable assets to make that side of things stack up.]
As I say, I am pretty sure it's beyond my own reach to fund via bootstrapping as there is a big element of 'doing it right from the outset' to really keep up with the USPs of the business. As I mentioned I do need to go through the figures on a scaled back basis to see at what is the lowest point the business can start 'properly' (as I said, I know it works comfortably at higher overhead costs, but it's a case of balancing what can be trimmed on day one versus what is essential, but allows the business to grow effectively and not get stuck in a going nowhere circle).
I'd happily look at debt finance, but unfortunately don't have enough equity in the house or other suitable assets to make that side of things stack up.]
A mistake many in your position make is to assume your idea, effort and time has financial worth in terms of the start up funding. Unfortunately, it doesn't. Any external investor putting in hard cash (financial risk) will require you to have put in at least an equal amount of hard cash (financial risk) or will require a slice of the pie greater than you may deem appropriate.
Also, do not be tempted to give away equity too easily. It's your baby so keep it yours. Acquiring ket services at start up in return for equity is all too easy and very tempting but can cause big issues later on. I've recounted this story a few times but worth another airing here:
A client of ours started up in 2002 and key to their business was a website that would have cost around £25K which they didn't have. They agreed with a designer/developer to give him a 20% stake in return for the website which he did. Fast forward 10 years and the company grew considerably, acquired other businesses and directors and shareholders and was ultimately sold a few years ago for a lot of money. The web chap - who only ever did the first incarnation of their site - locked them into the 20% and ended up receiving the greatest share of the money when the company was sold. The directors of the company tried to fight this legally, costing much money to do so, and lost!
Good luck!
Also, do not be tempted to give away equity too easily. It's your baby so keep it yours. Acquiring ket services at start up in return for equity is all too easy and very tempting but can cause big issues later on. I've recounted this story a few times but worth another airing here:
A client of ours started up in 2002 and key to their business was a website that would have cost around £25K which they didn't have. They agreed with a designer/developer to give him a 20% stake in return for the website which he did. Fast forward 10 years and the company grew considerably, acquired other businesses and directors and shareholders and was ultimately sold a few years ago for a lot of money. The web chap - who only ever did the first incarnation of their site - locked them into the 20% and ended up receiving the greatest share of the money when the company was sold. The directors of the company tried to fight this legally, costing much money to do so, and lost!
Good luck!
Depending upon the nature of the business it might be worthwhile looking at crowdfunding.
There are many alternatives out there, like Crowdcube, Kickstarter, Crowdfunder and others.
There are many alternatives out there, like Crowdcube, Kickstarter, Crowdfunder and others.
z4RRSchris99 said:
I wouldn't put my money in as an angel investor unless you had mortgaged your house to put your money in
Not saying I wouldn't if I was able, and know where you're coming from. I'm trying to work out what options do exist, or whether it realistically has to go on the back burner until I can generate more cash towards it (unlikely in the immediate term).Interesting story Steve - I'd not seen you recount it before. Funnily enough a website aspect was something I was considering some kind of deferred payment via a holding could be covered off by (which I know is a possibility with my web guy). Funnily enough, not from the same viewpoint, but I was thinking that it would be some kind of agreement whereby an agreed over-priced fee is to be paid over a longer term, with a shareholding that is returned upon full payment.
ReaderScars said:
p2p websites like FC are for established companies not startups.The days of going to a bank with some figures on paper and walking out with a bundle of cash are gone.
Realistically you will need around 50% of the start-up funding and still end up with an eye-watering interest rate on the rest.
Starting small and growing from profits and/or a loan to an established business with trading history is the best way to end up 'owning' the business in the long run IMO.
Realistically you will need around 50% of the start-up funding and still end up with an eye-watering interest rate on the rest.
Starting small and growing from profits and/or a loan to an established business with trading history is the best way to end up 'owning' the business in the long run IMO.
As others have said, equity (selling shares) is usually the way to go for a brand new startup.
Not all angel investors take the view that z4RRschris99 does (I don't) - they all have their own criteria + preferences. Your ability to invest your own cash may or may not matter.
One thing that does help is making sure you have SEIS/EIS tax relief lined up (google it if you haven't heard of it). It's an extremely generous tax relief which restricts the downside and removes capital gains tax on the upside for most UK private investors. Lots of angels won't look at equity investments which don't carry this tax relief. It's not hard to get but there are some pitfalls and a quick word with a decent accountant would be worthwhile if you're not accustomed to that kind of thing.
There are plenty of crowdfunding platforms which do equity investments rather than debt like FundingCircle. Seedrs is one (but what's with the weird promo link in your profile greg? Do you get a kickback? No issues if so but it's nice to be open about these things). CrowdCube and InvestingZone are others which spring to mind. All have slightly different ways of doing things and you mind find one suits your business better than others.
One final thing - there are quite a few government backed initiatives which invest money into startup equity around the country (or even give it away in the form of grants). These tend to be targeted at "deprived" areas of the UK. From your profile it looks like you're in Essex so there might not be much around (culturally deprived doesn't count unfortunately, just economically
) but again, it's worth a google.
Not all angel investors take the view that z4RRschris99 does (I don't) - they all have their own criteria + preferences. Your ability to invest your own cash may or may not matter.
One thing that does help is making sure you have SEIS/EIS tax relief lined up (google it if you haven't heard of it). It's an extremely generous tax relief which restricts the downside and removes capital gains tax on the upside for most UK private investors. Lots of angels won't look at equity investments which don't carry this tax relief. It's not hard to get but there are some pitfalls and a quick word with a decent accountant would be worthwhile if you're not accustomed to that kind of thing.
There are plenty of crowdfunding platforms which do equity investments rather than debt like FundingCircle. Seedrs is one (but what's with the weird promo link in your profile greg? Do you get a kickback? No issues if so but it's nice to be open about these things). CrowdCube and InvestingZone are others which spring to mind. All have slightly different ways of doing things and you mind find one suits your business better than others.
One final thing - there are quite a few government backed initiatives which invest money into startup equity around the country (or even give it away in the form of grants). These tend to be targeted at "deprived" areas of the UK. From your profile it looks like you're in Essex so there might not be much around (culturally deprived doesn't count unfortunately, just economically
) but again, it's worth a google.In the last few years I put up a number of business plans to the bank (HSBC) and even had a good amount of my own money. The business plans all stood up and was fully costed with extensively researched costs and expected earnings and returns. The banks always found a reason not to loan the money. Even when I over come their reasons not to loan the money they simply moved the goal posts...
In the end I ask what would they loan for.. I was told ' I am not supposed to tell you this but the bank is favourable to franchises'.. I went down this route and regretted it because the franchise was unable to supply any real tangible support or backup and often failed to be able to supply their own product.. Their regional managers had never done the job and always lied through any situation.. It was a very unhappy experience.
All I will say is that if you do not have a lot of money tied up in items they can easly repro like your home they will be very wary of lending you anything. Even if you are going to be limited as a company they will still require you to act as a guarantor.
I wish you all the best in your project but having been self-employed for twenty years I have a very dim view of banks and the stunts they pull. If you don't need money and have a good balance they are all over to sell their products. When you need money they then treat you like crap and put every hurdle in you way.
In the end I ask what would they loan for.. I was told ' I am not supposed to tell you this but the bank is favourable to franchises'.. I went down this route and regretted it because the franchise was unable to supply any real tangible support or backup and often failed to be able to supply their own product.. Their regional managers had never done the job and always lied through any situation.. It was a very unhappy experience.
All I will say is that if you do not have a lot of money tied up in items they can easly repro like your home they will be very wary of lending you anything. Even if you are going to be limited as a company they will still require you to act as a guarantor.
I wish you all the best in your project but having been self-employed for twenty years I have a very dim view of banks and the stunts they pull. If you don't need money and have a good balance they are all over to sell their products. When you need money they then treat you like crap and put every hurdle in you way.
Snapper7 said:
In the last few years I put up a number of business plans to the bank (HSBC) and even had a good amount of my own money. The business plans all stood up and was fully costed with extensively researched costs and expected earnings and returns. The banks always found a reason not to loan the money. Even when I over come their reasons not to loan the money they simply moved the goal posts...
In the end I ask what would they loan for.. I was told ' I am not supposed to tell you this but the bank is favourable to franchises'.. I went down this route and regretted it because the franchise was unable to supply any real tangible support or backup and often failed to be able to supply their own product.. Their regional managers had never done the job and always lied through any situation.. It was a very unhappy experience.
All I will say is that if you do not have a lot of money tied up in items they can easly repro like your home they will be very wary of lending you anything. Even if you are going to be limited as a company they will still require you to act as a guarantor.
I wish you all the best in your project but having been self-employed for twenty years I have a very dim view of banks and the stunts they pull. If you don't need money and have a good balance they are all over to sell their products. When you need money they then treat you like crap and put every hurdle in you way.
I have been trading for the last 15 years and the first 7 were fine, with the bank very keen to lend with relatively little security on a profitable business.In the end I ask what would they loan for.. I was told ' I am not supposed to tell you this but the bank is favourable to franchises'.. I went down this route and regretted it because the franchise was unable to supply any real tangible support or backup and often failed to be able to supply their own product.. Their regional managers had never done the job and always lied through any situation.. It was a very unhappy experience.
All I will say is that if you do not have a lot of money tied up in items they can easly repro like your home they will be very wary of lending you anything. Even if you are going to be limited as a company they will still require you to act as a guarantor.
I wish you all the best in your project but having been self-employed for twenty years I have a very dim view of banks and the stunts they pull. If you don't need money and have a good balance they are all over to sell their products. When you need money they then treat you like crap and put every hurdle in you way.
The following 5 years they really didn't want to lend anything, even to still profitable businesses (it had grown to two by then). Blood from a stone seems a good description.
The last 3 years have seen an easing of their attitude a bit. Now keen to lend against capital purchases and more relaxed about the overdraft (which has been the same for 5 years).
I would not now go to them for any capital purchases - they blew it when the stopped that type of funding a few years back. The company I have dealt with for the last 15 years that continued to offer funding during the 'banking crisis' still gets that business.
Banks will lend money if you have plenty of assets to 'guarantee' the lending. They are no longer there for unsecured lending.
We have probably gone back to the way things were more than 100 years ago when you needed funding from venture capitalists (they probably called it something else then) for any new business.
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