By Sue Leathem
Partner
JR Watson & Co
YOU know that your new business or expansion plan is brilliant. But it needs money which you do not have. This is the time to sit back and review carefully your plans. Ask a finance professional to look at your forecasts critically.
You need to be prepared to answer searching questions to establish the strength of your proposal and your formal plan. Have you or your staff got the skills to make it happen? What is your competition and how do you expect them to react? Are your forecast income and costs realistic? Is your location appropriate for the venture? And so on.
At the end of this you have three choices – go for it, abandon the idea or address the weaknesses.
If your answer is to go for it, you then have to address the thorny problem of ‘how do I get the money?’.
Traditionally, banks have funded business borrowing. You will know that the bank manager has largely disappeared, and lending decisions are often made by credit committees, to whom you will not be able to talk. Nevertheless, they are still probably the point of first contact. Consider what security you can offer them, perhaps a second charge over a property, not forgetting that you need the consent of any co-owner or co-habitee for this. Some people do not like this idea – but if your plan is so great, what do you have to lose?
Loans from friends and family help many businesses forge ahead. You will not wish to let down loved ones, so be realistic in what you offer regarding repayment and interest. If you fire their imagination, they might wish to invest in shares in your business in the hope of income from dividends and a future tax efficient capital gain.
Angel Investment has become more visible as a result of Dragons’ Den. Such investors will always want a share of the company. The investor will take a keen interest in the operation of the business, so make sure you understand who you are working with. If every encounter leaves you bruised, neither you nor the business are likely to thrive.
Crowd funding is a modern lending enterprise, and it is also referred to as peer to peer borrowing. People with cash surpluses deposit them with crowd funders who then lend it on to businesses that they have risk assessed. As well as loans, crowd funders can make donations or take a share of equity, but the most common route is loans. The rate of interest is high in comparison to bank rates, and the guarantees are required. But if all else fails, this is a commercially viable route. Having proved that you have met the crowd funding terms after a period of time, you will find it much easier to replace the crowd funding with bank finance.
Do not forget to see if there are any grants for what you plan to do. Some areas offer grants for new businesses. The UK government offers a range of grants for businesses engaged in research and development.
This is not for the faint hearted, but if your idea is good, it is worth burning the candle at both ends!
Sue Leathem is a partner in J R Watson, 11 Cheyne Walk, Northampton, NN1 5PT and can be contacted on 01604 630745. Visit the website at www.jrwatson.co.uk