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There are always costs involved in establishing a business. You may not need premises to begin with if you are able to work from home, but you will almost certainly need equipment and materials to start you off as well as marketing and perhaps legal expenses, and when your company is up and running, you’ll need cash flow, or working capital, to tide you over in the periods between buying supplies/paying bills and receiving payment from your customers. All of your financial requirements will be set out in your business plan (see the earlier chapter in this section), which will include details of how much money you will require and how you intend to obtain it. Your business plan will be an invaluable tool for demonstrating your confidence and competence in running a successful business. Raising the money is a sales pitch. You’ll need to be persuasive. A strong argument, detailed research and evidence and a great deal of enthusiasm and confidence are the key elements. Naturally, you’ll be optimistic about being able to stick to your projections and keep your costs to a minimum, but things don’t always work out to plan so you should factor in some contingency when planning how much you need to borrow – it doesn’t look good if you have to go back to your investor or lender within a short period to make an unplanned request for more money, and it may well be rejected. There’s always debate about how much money you should pitch for. Some say you should ask for a great deal more than you need; others believe you’ll be more likely to get funding by keeping your request to a minimum. However, some sort of middle ground is probably the best option. Keep it challenging but realistic and based on solid evidence – your figures and financial strategy as detailed in your business plan. There are several different potential sources of funding for setting up in business. You might want to use your own money, borrow from family or friends, get a loan from a bank, attract investors or business angels, take on a partner or apply for government loans or grants. How you obtain the money you need will depend on your circumstances and the requirements of your business. Let’s look at all of these in turn. Doing it yourself – using your own money certainly saves you from being in debt to others and from having to make those challenging sales pitches for cash, and as you will have no investors to report to it puts you in full control of the business. However, there is a great deal of personal risk involved in using your own money and you stand to lose a great deal if things go wrong, especially if you have remortgaged your home or taken out a secured loan to raise the capital. Also bear in mind that personal loans and credit cards can have very high interest rates compared to business loans and grants. Family and friends – it may be easier to borrow money from friends and family than from a bank and they may offer more favourable terms, perhaps not charging any interest. However, with this option there is again a great deal at stake personally and you wouldn’t want to strain or endanger relationships or cause loved ones and financial stress. Treat loans from family and friends in the same way as you would outside lenders by setting out clear written agreements and terms and conditions. Their money and interests still need to be safeguarded and you don’t want there to be any misunderstandings. Bank – banks offer a wide range of loans and overdrafts to suit different needs, so you’re bound to find something that is right for your business. However, you’ll need to put forward a good case to get the money and you will need to offer some sort of security or sometimes a guarantor. Don’t be disheartened if one bank rejects you – shop around as there are lots of different deals and rates out there. Look at it this way: the more practice you get at presenting your business case persuasively, the stronger your chances of the bank saying yes to your request. If you have been unable to obtain a loan, you may be eligible to apply for assistance under a government scheme called the Small Firms Loan Guarantee (SFLG), run by the Department of Trade and Industry (DTI). It provides a security guarantee to the lender of 75% of the loan amount in return for a 2% premium on the outstanding loan balance, which you must pay to the DTI. You can borrow up to £250,000 over a term of up to 10 years. Again, terms and conditions vary between banks so shop around. Investors or business angels – private investors, sometimes known as business angels, are wealthy individuals who put up large sums of money with the expectation of making a significant return on their investment when the company becomes successful. The advantage of raising capital from investors is that they normally won’t demand any payment until the company is making a profit, and, as they tend to be experienced entrepreneurs and businesspeople, they may have a great deal of expertise to contribute to your business. Also, the more capital you have invested in your business, the easier it will be to obtain a bank loan. However, there are some downsides. Most investors will want to have a certain say in how the business is run in order to ensure that their investment grows, so you may have to report to them every so often, and if you do make any profits, your share of them will be reduced as it will be divided among your investors according to the agreed terms. Again, to attract investors you’ll need a strong business plan and a convincing sales pitch. Government grants and loans – these can be excellent, low-cost means of obtaining money, although availability is often limited and the competition can be steep. There are so many different schemes that it would be impossible to list them all here, and many of them are local or regional. To find out what is available in your area, contact your local business link centre or business gateway, or get in touch with your local authority. Special grants, loans, schemes or other incentives are often offered for setting up in certain locations, such as regeneration areas, for businesses setting up in certain sectors such as science and technology, and for companies working in partnership with academic or research institutions. There are also various schemes, such as the Prince’s Trust or the Shell Livewire scheme, that aim to assist and encourage young entrepreneurs. Wherever you obtain your funding, you’re likely to have to put forward your business plan to others and for this you’ll need good presentation skills. As with anything, first impressions count. Make the layout of your business plan document clear, plain and professional – avoid clutter and stick to a plain typeface. Also, use computer spreadsheets to help you make neat charts and graphs. Proofread it before you print it to correct any spelling mistakes or typing errors, or ask someone else to look over it for you – a fresh pair of eyes always helps. Present the document on good quality paper in a neat wallet or folder or consider having it professionally printed and perhaps comb/spiral bound. When it comes to giving presentations of your plan, the way you come across will have a big influence on how people perceive your business. Think of potential investors or lenders as customers and treat them in the same way – bear in mind that they will also take your presentation as an indicator of how you present yourself to customers. You need to be confident, so be sure of the content of your plan, including your facts and figures and objectives, and rehearse your presentation thoroughly. Also explore what kinds of questions you are likely to be asked and rehearse positive and persuasive answers so that you don’t end up in a tricky spot on the day.
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