Are you thinking about starting your own business, but unsure about how to finance it? Our business finance experts from FSB Funding Platform share their useful tips on how you can turn your business idea into a reality.
How can I prepare my start up for funding?
It’s important to get your foundations right first before jumping into finance for your new business. In the early stages of your business venture, it’s easy to get sidetracked and first-time founders often find things don’t turn out as initially expected.
Starting with a simple two-page template from FSB Funding Platform can help you to create your first business plan. Having a good plan helps you to avoid serious money troubles further down the line, and it’s much less scary to do than you might think.
Here are the three key areas that you need to remember if you’re thinking about finding finance for your business idea.
Your business and objectives
Whether you have Dragon’s Den-style ambitions or want to start small, you’ll need to be able to describe your business in a few words. For idea-stage businesses, you are your business' first ambassador. Perfecting your pitch will definitely help you to win customers, and won’t do any harm when you are seeking finance.
One thing that is really important is to be clear about your business objectives. For idea-stage businesses, you can think about this in two stages:
- What do you plan to achieve in year one?
- What objectives do you set yourself for the year after that?
As a result of COVID-19, many businesses are now launching online first, because it’s quicker and easier to find paying customers. So, don’t worry about if it feels your objectives don’t go far enough into the future. In the context of raising finance, it’s much better to under-promise and over-deliver.
With that in mind, be prepared to follow a ground-up approach for your finance. It would be nice to have a big lump sum upfront, but the reality is different, because most businesses are not an overnight success. Starting with a small sum and getting customers to pay for your products or services early on is a much better path. It validates that there is demand for your product, and thereby gives finance providers a better way to assess your business progress.
The final ingredient is to clearly align your planned expenses with your objectives for year one. Nobody can predict the future, so finance providers will worry if you have big immediate expenditure for long-term objectives that you may struggle to adjust to in changing market conditions.
Secondly, there are some things that are worth spending money on, and others you can bootstrap for a while without harming your future success. For example, you might need a space to work in, but you won’t need to pay for desks for staff members you are not going to hiring for another 12 to 18 months.
What else should I think about?
- What products do you sell or what services do you provide?
- What percentage of the company do you own?
- What will it take to go from idea to getting customers to pay?
- Will you have commercial premises or is this a home-based business?
- Key milestones (for example researching the market, creating a website, etc.)
- If you have purchase orders or customers already, how representative are these going forward? Will they become repeat customers?
Your skills and experience
It’s never too late to start your own business – in fact, the average age of a successful start up founder is 45! When it comes to seeking funding, that means you should not be shy to make reference to your previous experience of setting up a business, or highlight your work experience in a given sector.
Training and formal qualifications are required in some sectors, but having real life experience is a plus for finance providers. It means you are more likely to overcome challenges and while you may not be an expert in every department, many personal traits transcend the sector and will put you in good stead when you are the one running the show.
Equally, be clear about your knowledge gaps, and build training or mentoring into your plan. You might be a natural salesman, but finance providers will be more likely to back you if they can see that you are happy to add talent to your business where you are not the right person for the job.
Back-up plan
Especially at the idea stage, there are many things that can happen that you cannot anticipate. So, make sure you have a Plan B that lets you keep a cool head when faced with unexpected events. From a finance perspective, think about how you would meet your personal expenditure, loan repayments, as well as any long-term liabilities in relation to the business, in the event the business were to fail.
It’s definitely not fun to think about your business idea in this way, but by doing it you can set a personal survival budget and look at your planned expenditure with a new lens: is it essential that you allocate budget to a particular item, and could you get out of the agreements without too much difficulty? Planning for the worst is even more important, when you go into business with others. If it is just yourself, you can decide on your own terms. But when there are multiple decision-makers involved, you need to set expectations about success or failure early on to avoid headaches later.
For many first-time founders, the reality is that they develop their business on a part-time business as a side-hustle, while being employed somewhere else. This approach may or may not work for you, but in planning for the worst, you can ensure you won’t be paying off money owed from a failed venture any longer than is necessary.
What else should I think about?
- Do you have any long-term liabilities such as lease agreements (break clause), asset finance, other credit agreements, etc.
- Does your personal survival budget demonstrate sufficient disposable income capable of absorbing the monthly loan repayments?
- Do you have other skills or experience that would reasonably allow you to return to employment? It may be useful to note potential job type and salary expectations.
Apply for your start up loan today
At FSB Funding Platform, you’ll have free support every step of the way to help you to apply for a start up loan.
A start up loan is a government-backed personal loan available to individuals looking to start or grow a business in the UK. It allows you to borrow up to £25,000 per company director. Part of the British Business Bank, the loan has a fixed interest rate of 6% p.a, making it easier for you plan knowing what the repayments will be, and it’s available with repayment terms of one to five years, but with no setup or early repayment fees.
Exclusively for FSB members, the process is quick and easy to complete. When we receive your application, we’ll review the information with you and provide you with the two-page template so you can share your plans for your business.
* Please be aware that we will be only available to help you with your start-up loan application if you didn’t apply anywhere else before, and it is the first time that you are exploring this option.