How Do I Fund My New Business Venture in the UK?

21/04/2018

A new business venture has been born. You have your killer idea, you have done your research and are putting the finishing touches to your business plan, but what’s next? Every successful venture needs some financial backing to get it off the ground. How do you go about securing that much needed business funding and how do you know which is the best option for you?

There are various ways you can go about this and you may need to combine multiple approaches to enable you to launch. From business bank loans and startup grants to angel investors, here are some realistic ideas for consideration that can enable you to get you off the ground.

Self-Funding

Raiding the piggy bank might not produce the capital you require but having a look at your own personal funds is a good place to start. It’s also a good way to test whether you truly believe that your new venture has prospects. Conduct a full personal financial review to assess your position. You may have funds that you have set aside intended for other purposes but that you can re-consider as investment in the business. Do you have any shares that you could cash in for example, or can you get a better deal on your mortgage to free up some capital?

Self-funding is more beneficial than you may realise as it allows you to have full control over your business and mould it the way you want to. It also demonstrates that you have complete faith in your venture which will in turn attract any future investors. If you are willing to invest your own assets then they are more likely to invest in you.

Family and Friends

Raising capital from within your immediate network might be a sensible option. Those who know you well are more likely to trust your business vision and are also have confidence in you that you will deliver on expectations. With interest rates so low in the UK this option is mutually beneficial. You can repay the loan with an interest rate that is higher than they would receive from that cash sitting in the bank. This rate will still be lower than you would have to pay the bank borrowing the money directly from them.

In addition, you can agree other terms and conditions that are specific to your requirements. For example how much the loan will be, when it needs to be repaid and the repayment terms such as frequency of payments. It is advisable to formalise any loan agreements with a written contract. Having the agreement in writing will formalise the details and allow for clarity on both sides.

A Promissory Note is a simple contract that records the terms of a small loan in place of a complex loan agreement. It should include the amount of money to be loaned, any interest rates that are to be applied, repayment terms and the date when full repayment of the loan is to be made

Small Business or Startup Bank Loan

A bank loan obviously comes with the added cost of an interest rate. These vary considerably and can be very high so you will need to do some research. The advantage is that it allows you to keep ownership of your business without having to give any shares away to investors.

The biggest banks in the UK all have specialised services for small businesses. The process for applying for a loan can be long and tedious and you are likely to have to offer up personal assets as security. It is vital to ensure that you don’t borrow too much capital in proportion to your equity. Ensure you have a realistic and convincing business plan drawn up before you embark on securing a loan.

Startup Grant

The UK Government has pledged to help SMEs through the stages of start-up and growth and now there is a range of funding for small businesses to take advantage of. Use the government’s Business Finance Support Finder which allows you to search for funding opportunities based on the location, size and type of business you run.

One option is to apply for a government backed Startup grant. This is a loan of between £500 and £25,000 specifically intended to start or grow your business. Unlike a business loan, this is an unsecured personal loan. In addition you will get free support and guidance to help write your business plan, and successful applicants also get up to 12 months of free mentoring.

Angel Investors

An individual angel investor is usually themselves an entrepreneur who is looking to invest their spare assets into a startup. The advantage of bringing an angel investor on board is that they will not only contribute substantial funds to your business, but also be able to share their experience and access to resources that will guide you towards growth.

You can rely on an angel investor to act as your business coach as they obviously have a vested interest in the success of your venture. You can sense check new ideas and business developments. An angel investor will also usually be able to open doors for you via their large business network.

The downside is that you will have to surrender a significant percentage of control as your investor will require a share of the business in return for their investment. You may also be under significant pressure to deliver your business projections to ensure your angel receives the value they expect.

Related reading: Angel investors vs venture capitalists

When you do get the backing of an investor you will need ensure the correct and relevant legal documentation is in place in order to protect all parties involved.

You may want to issue a convertible note to your investor. This is a form of short-term debt that converts into equity. So the investor would be loaning money to your startup and instead of a return in the form of interest, the investor would receive equity in the company. A Convertible Note Certificate is a certificate that evidences the investor’s title to the convertible note. It is issued after due payment of investment amount by an investor.

A Simple Agreement for Future Equity (SAFE) is a contract by which an investor makes a cash investment into a company in return for the rights to subscribe for new shares in the future. Contrary to a convertible note, a SAFE does not carry interest, does not expire, and does not specify a minimum amount of investment that the investor will make.

A Seed Investment Agreement (Ordinary Shares) is a contract by which funds are raised by issuing new ordinary shares to new investors. Raising funds by a Seed Investment Agreement is simple and direct. The new investors have the same class of shares as the founders and therefore have equal rights.

Incubator

As the name suggests, an incubator is a company that protects and nurtures a fledgling business enabling it to develop and grow. An incubator can offer training, guidance, networks, capital and coworking spaces. Utilising an incubator will also give you credibility with respect to any future investors.

Final Thoughts

There are some alternatives to traditional ways of raising investment that are gaining in popularity. Funding Circle for example is a peer-to-peer lending marketplace that allows investors to lend money directly to small and medium-sized businesses.

Related reading: When should your startup consider crowdfunding?

Lastly, have you considered Crowdfunding? Essentially this involves encouraging people to club together to fund a new project or venture. You will need to raise many small amounts of cash from a large number of people typically via the Internet. Propose your business venture to the masses and if it’s popular enough you can raise the necessary capital to get it off the ground. You will need to offer some sort of incentive though to attract investors and remember, it’s not the done thing to attempt to crowdfund for a vacation or a new sports car!

Zegal can assist you with the necessary documentation when raising finance for a business venture:

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How to Finance Your Business If Your Loan Application Is Rejected

09/04/2018

First things first: don’t panic. Loan applications get rejected all the time, and it’s far from the end of the world in terms of the options you have available to you as an entrepreneur. If your loan application is rejected, you’ll just need to utilize one of many methods to finance your business that don’t require a loan. Your startup still has a lot of life left in it.

Economize As Much as Possible

Your loan request may have been a bit much. Attempting to cut startup costs as much as possible will make it easier secure funding, no matter what method you ultimately choose. Start looking for cheaper office space and checking out the pricing for refurbished electronic and used office furniture. Bring the costs down as low as you can get them without drastically compromising your vision, and draw up a new, lower figure that will be easier to regard as an attainable goal.

Come Up with a Slow Plan for Scaling

Trying to launch every aspect of your business at once will make things more costly. If you start small, you can reinvest your earnings into growing your business. It’s crucial to save as you go. Focus on what you can deliver with the lowest overhead. If your products or services can be made entirely virtual, the costs of production and delivery will be substantially lower. This will also make your business plan look more attainable, which is something that will appeal to any investors you may be networking with.

Meet Mentors and Investors

If you’re new to the world of business and you’re having trouble finding capital, there are two types of people you need to meet. Mentors and investors. Mentors will be able to help you revise your business plan and pitch your business to people who may be interested. Some mentors may even become investors if they believe in what you do and share a similar vision.

Investors can be found through a variety of channels. Attend industry related events and maintain an active presence on your professional social networking accounts. There are also platforms created specifically for matching startup owners to private investors. Seek a specialty platform that’s designed for your industry.

Treat every professional you meet as a potential investor, even if you don’t intend on directly pitching your business to them. Even if they won’t ultimately become involved with your business, they may be able to point you in the direction of someone who will.

Turn to Your Friends and Family

A lot of people will do a “friends and family” round of investing before they officially approach investors. If the people closest to you believe in what you’re doing, they’ll likely want to support you. Even if you don’t raise much from the people you’ve already established relationships with, it’s still worth pursuing. It’s less you’ll need to raise later, and you’re more likely to get what you want if what you want seems minimal or reasonable to an investor. The more you were able to do independently, the less of a risk you’ll seem to be to a person who makes a living investing in people like you.

You’re not the first person to experience loan rejection. Plenty of successful business owners had to overcome a lot of rejection on their road to prosperity. Don’t give up – just be innovative in the fundraising methods you’re willing to explore.

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This is a contribution by Michelle Arios of BizDb.co.nz. The views expressed here are of the author’s, and Zegal may not necessarily subscribe to them. You, too, are invited to share your point of view. Learn more about guest blogging for Zegal here.

 

Author Bio 

Michelle Arios is a Careers Consultant and a Project Assistant Manager at BizDb.co.nz – a knowledge library with business information about New Zealand companies. As a huge fan of self-improvement, Michelle might usually be found listening to motivational speeches on YouTube or reading self-help books (sometimes at the same time). Feel free to reach out to her at @MichelleArios.

A Little Savings Go A Long Way For Small Businesses

22/02/2018

Every business has no shortage of business problems. However, the type of woes that small businesses face are relatively different from their larger counterparts.

For small businesses, the majority of these problems are due to revenue and cash flow. This is largely due to the diminutive nature of their business, making them unable to enjoy the same financial advantages as large companies.

The last thing that every small business owner will want is to be riddled with cash flow issues. It does not help a small business if the profits earned are unable to fund employees’ payroll or if the cash-on-hand is dipping into the negatives on the balance sheet.

Related reading: 4 tips for saving time on small business administration

Similar to personal savings, every small business should protect their liquidity by ensuring that they have sufficient buffers of cash. The way to go about is to save.

Here are some ways in which a small business can save without compromising on operations.

Purchase Secondhand Items

This applies to office furniture, vehicles or even equipment. The cost savings between purchasing new versus old can be substantial. Of course, only purchase what is necessary instead of simply buying everything that looks “good”.

Make Use Of Community Resources

This could come in the form of government funding or sponsorships. In Singapore, there are numerous fundings for start-ups and small businesses such as Startup SG Equity, managed by SPRING Singapore, as well as the Productivity and Innovation Credit (PIC), an initiative under the Inland Revenue Authority of Singapore which allows businesses to enjoy discounted tax deductions.

Be Savvy With Money

Maximise cash rebates and sign up for loyalty programs for routine office purchases. It could be using a particular corporate card to enjoy cash rebates on office supplies or an airline loyal program should there be business travels. Small rebates and savings will accumulate over time, increasing the business’ savings in the long run.

Setting aside savings to ensure sufficient liquid cash for the business requires concentrated and conscious efforts from the small business owner or Accounting team. Ideally, there should be a target savings amount that the business should work towards. Once the target savings amount is achieved, it should of course, be set to the next higher amount. With discipline and mindful efforts, this will certainly provide the business with sufficient extra cash in the long run.

Start managing your legal needs with Zegal today

This a guest post by RenQun Huang of Gpayroll. The views expressed here are of the author’s, and Zegal may not necessarily subscribe to them. You, too, are invited to share your point of view. Learn more about guest blogging for Zegal here.

About Gpayroll

Gpayroll is an easy to use, self-run online payroll service that will redefine and revolutionize the payroll industry. Its intuitive and automated system will help business owners focus on their core business without the hassle of managing payroll.

Make The Perfect Business Pitch

13/02/2018

Getting your elevator pitch right could be the difference between your business idea either getting funding or falling flat, so it needs to be as slick and persuasive as when Don Draper does his thing. 

What’s an elevator pitch?

You’ve got three to five minutes to sell someone on idea, the approximate length of a ride up a lift in a tall building. So you’ve got to make it count by condensing your carefully thought out business idea and straining out anything extraneous. You want the passion to come through but you also want to seem like you know exactly what you’re doing and that you’ve nailed down every detail from cash flow to logistics.

How to start?

Start by reducing your business idea down to one sentence. Then build from there with five more sentences that convey a bit more detail and then add another five. Then stop and edit out anything redundant and especially anything that uses broad language. Stick to specifics about what your business does and the goals for the future. 

Related reading5 tips for negotiating with VCs

Grab their attention

Include an opening line that will capture attention your audience’s attention immediately and make him or her intrigued to learn more. 

Include yourself

Make sure your pitch includes why you’re the right person, possibly the only person, to run it. Include the experience and expertise you possess that make you absolutely essential to the business your are selling. 

Rehearse

You need to be able to speak confidently about your business no matter how nervous you are. This will come from practice and practice and more practice. When you’ve run through it enough times, your brain will be able to automatically will take over even when your nerves threaten to get the better of you. Also try your spiel out on several different people. Ask them to critique the weaknesses in your pitch and then amend as necessary. You will probably only get one chance at this so it needs to be as polished as possible to get your message across and your business on its way to booming. 

Want to know what how to prepare and deliver an executive summary to potential investors? Check out this eBook written by Zegal’s mentor Emmanuel Pitsilis:

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