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Raising finance

Every busi­ness needs finance — whether it is just start­ing up or look­ing to devel­op and grow. What type of finance is best suit­ed to the devel­op­ment of your busi­ness, and who should you approach for fund­ing? If you are start­ing, or have recent­ly start­ed a busi­ness in the Lanark­shire area we, at Rus­sell & Rus­sell, can help you in the plan­ning stage of rais­ing finance.

Planning for growth

Is finance required?

Finance is very often nec­es­sary but con­sid­er what it will entail. Addi­tion­al fund­ing requires a com­mit­ment in terms of cap­i­tal and inter­est pay­ments. Embark­ing on this course of action must there­fore be planned care­ful­ly.

The busi­ness must be capa­ble of sus­tain­ing any addi­tion­al com­mit­ment to growth or expan­sion, and con­sid­er­a­tion will need to be giv­en to effects on man­pow­er, mate­ri­als and space.

Tapping existing resources

Before seek­ing out­side finance, a busi­ness must con­sid­er whether it could improve its work­ing cap­i­tal from with­in.

Par­tic­u­lar atten­tion should be giv­en to stock and debtors to ensure that both are kept to a min­i­mum. Con­sid­er how long it takes to bill cus­tomers and col­lect debts and look at ways to reduce this time.

If there are peri­ods of time when sur­plus­es of cash arise, review your affairs to try and ensure these are being used to gen­er­ate income by invest­ing on tem­po­rary short term deposits.

We can advise you on all these mat­ters.

Business plan

Assum­ing exter­nal fund­ing is nec­es­sary, plan­ning is essen­tial in achiev­ing suc­cess. A well drawn up busi­ness plan not only crys­tallis­es in your own mind the nature of the project and the tim­ing of any required fund­ing, but is vital to any lend­ing insti­tu­tion. They are unlike­ly to pro­vide any assis­tance with­out a prop­er­ly drawn up busi­ness plan.

The plan will include details of:

  • the objec­tives and aims of the busi­ness
  • the pur­pose of the required fund­ing
  • the busi­ness own­er­ship and his­to­ry
  • man­age­ment and respon­si­bil­i­ties
  • prod­ucts and mar­ket share
  • sales plan and strat­e­gy
  • the finan­cial posi­tion of the busi­ness with detailed cash flow fore­casts and past accounts.

Types of finance

General

Finance is avail­able in many forms, but it is impor­tant to make sure that it is right for your busi­ness. Oner­ous terms and inflex­i­bil­i­ty can often hin­der a grow­ing busi­ness.

The more obvi­ous sources of finance include bank over­drafts and medi­um to long-term loans and mort­gages, but rates of inter­est can vary con­sid­er­ably. There­fore we advise you to con­sult with us before mak­ing your final deci­sion.

Specific

Spe­cif­ic meth­ods of finance are avail­able for acquir­ing assets or releas­ing cash from debtors. Care­ful­ly con­sid­er the options avail­able which include:

  • leas­ing assets
  • hire pur­chase
  • out­right pur­chase
  • debt fac­tor­ing
  • invoice dis­count­ing.

Each method of fund­ing has advan­tages and dis­ad­van­tages includ­ing impli­ca­tions for tax pur­pos­es.

Other

Oth­er means of finance may be avail­able for your busi­ness from gov­ern­ment sources, through the issue of shares or even your own pen­sion scheme.

Gov­ern­ment assis­tance can be in the form of grants, loan guar­an­tees or an enter­prise cap­i­tal fund. Oth­er grants may be avail­able on a region­al or local lev­el. The British Busi­ness Bank is a gov­ern­ment owned com­pa­ny which aims to make finance mar­kets work bet­ter for small busi­ness­es and works with part­ners such as banks, leas­ing com­pa­nies and ven­ture cap­i­tal funds.

Rais­ing finance by issu­ing shares may be anoth­er option to con­sid­er.

Security

What­ev­er form of finance is offered, the lender will always require some form of secu­ri­ty. How­ev­er the lev­el of secu­ri­ty sought may vary ‑ beware the lender ask­ing for unrea­son­able guar­an­tees.

Fixed and floating charges

Most bank loans and over­drafts are secured by way of a fixed charge over land and build­ings with float­ing charges over oth­er assets of the com­pa­ny such as stock and debtors.

Personal guarantees

For some busi­ness­es lit­tle secu­ri­ty may be avail­able because of insuf­fi­cient assets. Con­se­quent­ly the secu­ri­ty will be giv­en in the form of per­son­al guar­an­tees.

Take extreme care before sign­ing these guar­an­tees as they can be dif­fi­cult to amend at a lat­er stage and many bor­row­ers have suf­fered as a con­se­quence.

In par­tic­u­lar, per­son­al guar­an­tees are best if they are lim­it­ed by time or amount. Unlim­it­ed guar­an­tees are the most dan­ger­ous.

General

It may be pos­si­ble to use oth­er assets as col­lat­er­al such as life insur­ance poli­cies or by tak­ing a sec­ond mort­gage over your home.

What­ev­er the means of secu­ri­ty pledged, it should be care­ful­ly con­sid­ered and advice sought.

How we can help

The means by which finance is obtained will vary enor­mous­ly accord­ing to:

  • the amounts required
  • the nature of the busi­ness
  • the risk expo­sure to the lender
  • the peri­od for which finance is required.

Accord­ing­ly whilst some gen­er­al­i­sa­tions apply, indi­vid­ual cir­cum­stances require spe­cif­ic con­sid­er­a­tion. Time invest­ed in for­mu­lat­ing a fund­ing strat­e­gy, whilst not guar­an­tee­ing suc­cess, will pro­vide a struc­ture to guide the grow­ing busi­ness.

Our expe­ri­ence and con­tacts can enable you to achieve the means to help your busi­ness grow.

If you are start­ing, or have recent­ly start­ed a busi­ness in the Lanark­shire area we, at Rus­sell & Rus­sell would wel­come the oppor­tu­ni­ty to assist you in for­mu­lat­ing a busi­ness plan and rais­ing finance.