Starting or growing your business – our five-point plan to securing funding success

Whether you’re starting a new business or growing your existing one, turning your big idea into a reality often requires funding. The process of raising finance is, for many, a daunting one. It’s all very well having big business ambitions but working out what finance you need – and how to go about securing it – can be challenging, especially if you’re unfamiliar with the options available to you.

Business capital – do I need it?

It’s easy to get caught up in the excitement of starting or growing your own business. But to succeed, it needs more than a great idea. Without the necessary capital it will be difficult to move beyond the planning stage. Finding the right capital is a crucial step in building a strong foundation for your company and the reasons for needing financial help are many:

Initial startup costs: These can be anything from product development to marketing, legal fees to initial operations.
Expansion: As your business grows you may need capital to expand your team, premises, invest in new inventory or enter new markets.
Working capital: Ensuring you have enough money to maintain cash flow and cover day-to-day operations while waiting for customers to pay.

What types of business capital are available?

The type of funding you choose depends very much on your business model, growth goals and how much control you’re willing to rescind. There are several ways to raise the capital you need – with pros and cons to each.

Business Loans: As one of the most common ways to raise capital, business loans give you a lump sum of money to cover your startup or expansion costs and typically come with fixed repayment schedules and interest rates. Pros include not having to relinquish ownership of your business and, with fixed interest rates and repayment schedules, there are no nasty surprises. Cons however are that eligibility criteria can be strict, often requiring good credit and potentially security, which may make this option challenging for some businesses. Monthly repayments can also put pressure on cash flow especially in the early days.
Business overdrafts: A flexible option for managing short-term cash flow, business overdrafts allow you to access extra funds when you need them, up to an agreed limit. The main advantage is their flexibility—interest is only paid on the amount you use, making it ideal for covering seasonal fluctuations or unexpected expenses. However, overdrafts are not without drawbacks. They often come with higher interest rates compared to loans and may require regular renewal, potentially leading to uncertainty. Additionally, exceeding the limit can incur hefty fees, so careful management is key.
Equity financing: Think Dragon’s Den! This involves you giving a percentage of your business to investors in exchange for capital. It can be used by startups looking for large sums of money to scale up quickly, or for established businesses looking to grow further. Angel investors and venture capitalists also offer equity financing. The pros include no monthly repayments so you can focus on business growth. You may also benefit from your investors’ valuable expertise and connections as well as their funding. The cons however are that you do give up a portion of ownership and control. Investors may demand or expect rapid growth and high returns adding pressure at an already stressful time.
Crowdfunding: This allows businesses to raise funds from a large number of people in one go, typically via an online platform. Contributors can then receive equity and/or rewards, coupled with the satisfaction of supporting a business they like or believe in. Crowdfunding isn’t just limited to startups and is accessible to businesses at all stages of development. The format is also a great way to validate your business idea and build an early customer base. The drawbacks of crowdfunding are that it takes a significant marketing effort to attract backers and there’s no guarantee that you’ll raise the full amount you need so you may need a plan B.

These are the main ways of raising capital for your business. But before you decide on which one is best for you, ask yourself three important questions:

Control: Are you willing to give up equity in exchange for funding or is it important for you to retain full ownership of your business?
Repayment ability: Can you manage the monthly repayments that may be required by a loan? If not, would equity financing be a better option while you establish and grow your business?
Growth stage: Think carefully about how much funding you need. Are you just starting out and need small amounts or is your business growing fast and in need of substantial funding?

Preparing for funding success.

When you’ve established which type of funding is best for your business, being well prepared is the key to success. Here are four simple ways to make sure your business is ready to secure funding:

Create a well-structured business plan. Any lender will want to see that you’ve thought through your business model and their money will be put to good use so a solid business plan is essential. As well as highlighting your business goals be sure to include:
- An executive summary – This should be a concise overview of your business and its goals.
- Market research – Demonstrate demand for your product or service.
- Financial projections – These should be detailed forecasts including cashflow, profit margins and expenses.
- Growth strategy -Show how you plan to scale your business generating returns for your investors and enabling you to meet loan repayments.
Sort out your finances! To avoid looking ill-prepared, make sure all your financial records are up to date and accurate before seeking funding. Any potential lender or investor will need reassuring about your financial history when they assess your business’s financial health. Include:
- Up to date management accounts, including a balance sheet and income statements – All documentation that shows your assets, liabilities, income and expenses.
- Cashflow projections – Providing detailed forecasts of future income and outgoings shows how your loan or investment will be repaid.
Prepare your pitch. This is essential when looking for loans from investors or for equity financing. You need to ‘sell’ your business vision and convince potential investors that you have both the expertise and the plan to succeed. For equity investment, you will need to produce an investor deck, outlining your story, vision, financial projections and the investment opportunity. Once in place, practice, practice, practice your pitch so you can confidently and clearly explain why anyone should invest in you.
Consider security. Some lenders – for example traditional banks – may require security to secure their funding against. This can take the form of business assets, business equipment or commercial vehicles as well as personal assets or property. Make sure you’re able to demonstrate what assets you can offer as security for any loan.

Whatever size lender or investor you’re looking for, raising business capital is one of the most important steps in starting or growing your business. Taking time to prepare your business plan and financial information is crucial as is an understanding of the options that are available to you. Doing your homework will maximise your chance of success.

Looking for someone to help you perfect your business plan? In Jersey, no matter what stage you’re at in your business journey, the team at Jersey Business provides free, independent, confidential advice and support. They’ve also got a great, free business plan template you can download here: https://www.jerseybusiness.je/guides/business-plan-template/