What you can do to attract more investment to grow your business

Your start-up may need additional funding as it grows. To help your business grow, read our guide on business investment options.

The process of starting a business can be expensive. A solid business plan, a well-executed strategy, and hard work can help your new start-up succeed, but you might still need business investment to take it to the next level.
 
Funding a business is often thought of as a necessity only during the beginning stages. Many startups rely on start-up funding to cover off expenses, such as salaries, and invest in equipment, such as microbrewery equipment and laptops for creative agencies.

When your business is profitable and profitable, it can become an attractive investment for further business funding.

Business investment: why do you need it?

When you're only making a small profit, it can be hard to grow a business. Even though you can see the potential in your business idea, many small business owners cannot afford marketing, additional staff, or expanding premises.

In the case of a newly launched company seeking additional funding, there are plenty of reasons to do so:

• Marketing – An established business model can be used on a variety of marketing channels, including social media and online advertising, to reach more customers.

• Tooling, equipment and manufacturing capability – Better tooling, equipment, and manufacturing capabilities will allow your business to produce more products to meet demand.

• Staffing and facilities – Outsourcing business administration or hiring sales and marketing experts can benefit your business.

• Inventory – When demand surges, it can take a while for sales to translate into ready cash. You can boost inventory by obtaining a loan, overdraft, or credit line facility.

Many funding options and schemes aren't exclusive to newly minted start-ups. Even if your business has been operating for a few years, you can attract funding to grow. Start-up businesses can apply for a Start-Up Loan, for example, while businesses that have been operating for over two years can turn to angel investors or small business loans.

Options for investing in businesses

There are several options for funding a business. Choosing one depends on how much money your start-up needs, why it needs it, and how much of your business you're willing to sell.

Funding types include:

• Debt financing – Typically available in the form of a loan, such as an overdraft or bank loan. This loan can be secured against business assets or unsecured such as a Start-Up Loan.

• Equity financing – Investment where funding is given to the business in exchange for a percentage of the business itself and is typical of angel investing or venture capital investment.

• Crowdfunding – Funds are raised by encouraging many people to each make a small investment in your business. This is usually in exchange for a reward such as early access to an upcoming product or a small share of the company.

• Grants – Funds that don’t need to be repaid and are often given by organisations, local councils or as government-backed incentives.

For guidance on the type of funding that best suits your needs, consult an independent business advisor and your accountant.

Debt financing

Bank loans, start-up loans, and other personal loans are all forms of debt financing. A small business can expect to borrow £25,000 and repay it over a set period, such as several years, in instalments. Since interest is usually charged on loans, you'll have to pay back more than you borrowed in total.

For a better understanding of how repayments can affect your cash flow and a sense of the total amount repayable, include the interest when applying for a loan. You should know how much you will repay an organization that lends you money, such as a bank. Depending on your cash flow, you may be able to pause repayments if there are early repayment penalties or features such as repayment holidays.

Credit lines allow you to pay for stock and suppliers later, often without interest, as well as factoring. Businesses will buy your unpaid invoices in advance and pay you a smaller amount, typically 90% of the invoice value. Your customers may not settle their bills in time, so this can be helpful if you need a cash injection.

Equity financing

In exchange for a share of your start-up, some investors will fund your business. The term 'angel investor' is usually used to describe private investors who invest in smaller companies. The amount of equity financing provided by an angel investor usually ranges from £25,000 to £100,000, making it suitable for larger amounts than debt financing. You can expect to receive between 20% and 25% of your business in exchange for the investment.

A typical angel investor offers more than just cash. The majority of them are seasoned experts who can provide advice, support, and contacts that will help your business grow. The process of raising angel investment can take time with no guarantee of success, and you'll need a detailed business plan and pitch.

Crowdfunding

Crowdfunding has become a popular way for small businesses to raise additional funding, mostly through crowdfunding platforms. Investing in these allows you to reach a large number of investors with small investment amounts. You may be able to raise substantial amounts by attracting many small investors.

Your business idea must capture the imagination of many smaller investors. Small investors often receive rewards such as t-shirts, badges, and products as part of crowdfunding offerings. For investors, some businesses offer a small share of the company.

Grants

Grants for businesses are available from charities, local authorities, and government agencies. The amount you can raise from debt or equity funding is generally lower than the amount you can raise from grants. Grants generally do not require repayment. In general, grants are associated with a specific scheme or initiative, like funding sustainable businesses or hiring local residents. A grant can be a rebate, free service, or a discount.

For more information, contact Zyla Accountants for support with the growth of your business.