Funding a new or growing business

One of the main issues faced by new or growing businesses is the availability of funding. Funding can take many forms ranging from the use of personal savings and family loans through to grants, business loans, overdraft facilities, hire purchase arrangements, leasing arrangements and supplier credit terms. In most cases, funding and cash flow management is achieved via a combination of methods.

Other methods of funding such as crowdfunding, attracting external equity investment by offering tax efficient investment schemes, such as the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS), and even the tax reliefs that may be available for losses, capital expenditure and expenditure on research and development are often not considered.

When assessing funding methods and the most appropriate structure for the business, various factors must be taken into consideration. These include, but are not limited to, the level of funding required, repayment terms and other conditions attached, anticipated cash flow and profit levels, flexibility regarding the withdrawal or retention of profits, tax efficiency, who will be able to exercise control over the business and to what extent, any additional third party requirements such as interim accounts or reports, whether any limitation of liability is required and what the future plans are for the business.

A business plan is essential when assessing the viability of the business, the level of funding required and the ability of the business to service the repayment and any other terms attached to the funding. A typical business plan will include a description of the business, marketing and sales strategies, details of the operation of the business and financial forecasts. This should not be viewed as a “one-off” exercise but should be reviewed and updated on a regular basis to help identify potential issues, financial and tax planning opportunities and additional funding requirements at an early stage.

Maintaining up to date and readily accessible accounting records is essential and the use of a cloud accounting package can bring significant advantages in this respect including allowing your accountant access to live “real-time” data. This provides a much more accurate basis for financial and tax planning than historic data and will also enable any interim third party reporting requirements to be dealt with on a timely basis.

Rennie Welch LLP accepts no liability on the basis of this article and professional advice should always be sought based on specific circumstances. For advice or assistance please contact Lynn Miller at Rennie Welch LLP either by email at lynn.miller@renniewelch.co.uk or by telephone on 01573 224391.