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Finance Tips for the Smaller Business
With the present difficulties in the wider economy, there isn’t much money available for businesses in the form of grants, however, the need for other forms of finance and commonsense practices for running a business, still exist.
Whether you are a start-up SME or an established business, a limited company, partnership or sole trader, you will need a bank, perhaps an accountant and various other necessary financial services or solutions, including insurance and possibly a loan or some other form of investment.
From the outset, a business needs to consider how much money it requires to operate and whether external financing is necessary. You must also decide how you are going to run the company: are you going to do your own bookkeeping or is an accountant required, for example.
Here, we look at:
Banks and building societies
Many banks and building societies offer free banking services to new businesses for up to the first two years, sometimes longer, depending on the bank. A business bank account is necessary to keep your personal finances separate from that of the business.
Banks are also a useful source of finance in the form of overdrafts and loans, but they may require you to invest your own money first and additional security too.
Accountants and bookkeeping
The law requires bookkeeping for all businesses. The more complex your financial incomings and outgoings, the more likely you will need an accountant, since every VAT registered business has to keep records and all companies have to provide year-end accounts and this can be time consuming.
Your bookkeeper may also be involved in the business debt collection to make sure that you are paid on time by your customers.
Accountants can help you and advise on suitable software for bookkeeping and can also help you determine if you are IR35 Compliant.
Loans & grants
Loans from banks are a useful way of raising money, particularly for longer-term projects and capital expenditure. However, as mentioned earlier, banks will require guarantees – security perhaps – and may need to scrutinise your reasons for the loan before committing.
The economic climate is not helping existing businesses with raising finances from the banks, so shop around.
The Small Firms Loan Guarantee (SFLG) scheme, a joint initiative between the government and lenders, can help newer businesses, particularly those experiencing difficulties obtaining a loan.
Businesses can get loans from lenders such as banks, with 75% of the loan guaranteed through the scheme. Check with your local Business Link for more details.
Free money is very hard to come by and most grants are awarded to companies generating employment, creating training programmes or developing a commercial product, or conducting Research and Development.
You can seek grants through a number of organisations or agencies, including central and local government, the European Union (EU), regional bodies (development agencies for instance), and even charitable organisations. You should also talk to your local Business Link or Chamber of Commerce.
For established SMEs, factoring can be useful in helping your business to grow. It will buy invoices from you for less than their value and collect the money from the invoiced clients. Although you will lose some money, it does provide an effective way of sustaining cash flow.
Other forms of finance
Apart from your own money or that of others, such as friends and family, you can seek finance from a number of other sources.
Hire purchase (HP) and lease finance are an option, whilst business angels (wealthy individuals) might wish to invest in the shares of growing businesses. It also provides them with tax relief on their investment.
Other businesses, private investors and venture capitalists, could provide finance in return for shares. Such opportunities could mean additional experience for your business, and no interest payments on the money brought into the business.
Before securing external finance it is prudent to undertake a financial modelling exercise to ensure that your business generates an efficient return on the capital employed.
Payment protection insurance
If you cannot work because you fall ill or you have an accident for example, payment protection insurance (PPI) can help you pay for any outstanding loans, credit card bills or mortgage repayments for example.
It is extremely valuable if you think you might struggle with your personal finances if your business is not providing you with an income because it is unable to operate without you.
Turning around a business
Once your business is established you may find that it is not going as well as you expected and that you have to consider turning around your business so that it becomes stable and profitable again.
It may also help you to perform Company Credit Checks on your potential customers going forward to ensure that you do not run into finacial difficulty again.
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