How do I obtain capital to invest in my business start up?

You’ll almost certainly need to raise money to start up your company,
unless you already have sufficient capital yourself. The typical costs
of starting up are in obtaining premises, manufacturing your product if
you have one, buying materials, stock or equipment, marketing and fees
for external consultancy such as legal help, accountancy etc. Then when
you’re off the ground, you’ll need working capital to keep you afloat
in the gaps between paying your own invoices and receiving payment from
customer invoices.

Again, your business plan is essential at this stage of setting up your business. In it you will
already have scoped out what your money needs are and how you plan to
raise the capital, and you’ll be using it to persuade potential
investors and lenders of the benefits of funding your company. Your
financial calculations in your business plan therefore need to be
thorough and accurate and presented with confidence.

Everyone expects that they’ll be able to stick to their plans and only
need to borrow the absolute minimum, but more often than not something
unexpected crops up to throw a spanner in the works. It therefore makes
good business sense to include a contingency element in the amount you
request. It’s better to do that now and have the extra cash as a
safeguard than it is to have to return to your lender or investor not
far down the line to ask for more money. If it wasn’t in the original
plan they are likely to be concerned about your financial ability and
your request may be rejected.

How much money should you request? This question worries all start-up
business owners. You want to make sure you have enough to keep you
going without struggling, but how much will your investors or lenders
be prepared to give? Most experts would advise that you should pitch
somewhere in the middle – don’t leave yourself short by requesting the
minimum, but at the same time don’t be greedy (and lazy) in asking for
too much. You want to keep costs to a minimum and invest your money
wisely in your company, while still having the security of a little
extra for backup if required. What you borrow should give you a
realistic challenge for your business but should not be too risky. And
back up your calculation with evidence in your business plan – it has
to be credible.

People raise money for their company in many different ways, not always
from professional business investors or high street banks. How you
raise your capital will depend on your business needs and your own
circumstances. Here’s some information on various different sources of
funding.

Your own money – if you have enough cash to spare, putting up your own
money for the business means you don’t have to be in debt to anyone. It
will also give you full freedom over the running of your company as you
won’t be responsible to any other interested parties. On the other
hand, you’re risking a lot personally by investing your own cash and
you could lose it all – and not just your business, but perhaps also
your home if you obtained the money by taking out a secured loan or
increased your mortgage, for example. You should also be aware that personal borrowing rates
often have much higher interest repayment rates than business deals.

People you know – if they have anything to spare, family and friends
are often more willing to give you cash than external lenders or
investors. Again, though, there is a high level of personal risk, both
for your family or friends who could lose money, and for you – it can
cause relationship tensions. If you do take money from family or
friends, treat it as a formal business arrangement as you would with
external funding and agree clear terms and conditions. You want to
protect both your interests and ensure that there are no
misunderstandings.

The bank – high street lenders usually have a variety of different
packages and there’s usually something to meet everyone’s requirements.
You’ll have to do a sales pitch to get your money though, and depending
on financial circumstances you might also be required to find a
guarantor or provide some sort of security. Don’t just go to your own
bank – look around for a good deal and do your pitch to various
lenders. If nothing else, it will give you good practice! If you think
you might have more of a chance of obtaining money from your own bank
where you already have a strong relationship and good financial
history, then don’t put it first on your list of visits – present your
case to a few different lenders first to hone your presentation and
persuasion skills to a tee! Even if you can’t find a lender to give you
money, there is a government programme that may be able to help. The
Department of Trade and Industry offers a Small Firms Loan Guarantee,
in which it offers three quarters of the borrowing amount to the lender
as a security guarantee. In return, you must pay an annual fee (which
will be a small percentage of the remaining loan amount) to the
Department of Trade and Industry. Up to quarter of a million pounds can
be borrowed over a maximum 10-year period.

Outside investors – often referred to as ‘business angels’, private
investors are rich professionals, often successful entrepreneurs
themselves, who are able to offer a great deal of capital in return for
an expected large profit and dividends when the company starts to make
money. The advantage of obtaining finance from an investor rather than
a lender is that they will not expect any financial returns until your
business is turning a profit. Also, as successful business owners
themselves, they can be a valuable source of advice to guide you in the
right direction with your company. A combination of investment and
lending might be a good option. Your business will seem a much more
attractive and secure prospect to lenders if you already have a sum of
capital to back it up. Investors will no doubt have a level of
influence and decision-making power in your company, though. Most will
want to be kept informed of what is going on – they will want to
protect and develop their investment, of course, so you will have a
responsibility to them. Also, when you start to turn a profit, it will
be divided among everyone who has invested so you won’t get the full
whack. Finally, you’ll need to put forward a very good business case to
attract an investor – these are very wise, shrewd and experienced
entrepreneurs.

Government schemes – there’s a whole raft of options available to small
business owners from the government and local authorities in the form
of low-cost loans and grants – in fact far too many to mention here.
Your local business enterprise centre, chamber of commerce or local
council will be able to advise on what options are available for your
type of business. The loans are usually offered at very reasonable
rates and grants are of course non-repayable (although competition can
be tough). Such incentives are often given to certain types of
businesses in certain industries located in certain areas, particularly
in areas that are being regenerated and in fields such as science,
research or engineering.

In conclusion, the key message is that however you get the money you
need for your business, you’ll need a very strong business plan – and
you’ll need to practise your skills of presenting to ensure you make a
good impression and a convincing case.

The presentation of the document itself is also important. Keep it
clean, crisp and sharp. Use a business-like typeface, use colours
sparingly and use spreadsheets to create neat graphics. Have someone
else look over it for you when it’s done to check for mistakes. Print
it on good paper and hold it together in a presentation folder or comb
binding.

Don’t just plan to read out your business plan – people can do that for
themselves. Turn it into a slick presentation with a strong argument
for your case. Write down what you want to say and rehearse it several
times – in front of a mirror at first and then to family or friends.
Confidence is key and this will come with practice. Ensure that you
know the details of your plan inside out, including the figures. You
don’t want the facts to trip you up. It’s also a good idea to consider
what questions investors or lenders might ask and how you can answer
them confidently and convincingly.

Biography: Author: Benedict Rohan Website: http://www.mortgagenation.co.uk Benedict Rohan works as a freelance finance writer. Commercial Mortgage, Homeowner Loans, Remortgages

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