Show me the money | Funding the brand
Show me the money
The life blood of any business is the “finance” to commence, grow and expand the products/services being marketed.
Where does the funding come from?
Many business owners have the capital with which to launch and promote an idea or more practically several product lines. To be successful in launching and promoting a product/brand can be very expensive and not always successful.
The first step is to prepare a comprehensive business plan. This will ensure that you have researched thoroughly your chosen market and that the monies available to you can ensure that you can FUND your business. Perhaps more importantly is the chosen vehicle for your business, Sole trader; Partnership, Limited Company, Limited Liability Partnership. Advice should always be taken from the appropriate professionals to ensure that you are complying legally; that your chosen route is tax efficient and that you and indeed your family/investors have identified the appropriate “protection” for your business.
High Street Banks’ have been placed under considerable constraints when it comes to assessing lending proposals.
Are banks’ the only providers of finance?
Approaching a “bank” should be your initial “port of call.” BUT be prepared as they will ALWAYS require a CONSIDERABLE amount of information and it is recommended that you approach a “professional” to assist you in the preparation of any funding proposal. The professional should know
1. How best to advise and assist prepare the presentation.
2. Know which lender is the most appropriate for your circumstances.
3. Be with you throughout the whole exercise to provide the advice and guidance.
4. Introduce to you, where appropriate, other likeminded professionals.
Your own contribution.
Cash or Personal Assets.
1. Your own experience in the particular sector is essential.
2. A lender will look for you to commit a certain percentage of your own cash to the project.
3. If you have security; domestic property, investment property, stock & shares, other forms of tangible assets; then these may be required to be “charged” to a lender.
4. Monies can be “raised” to meet your own financial contribution from:-
a) Obtaining cash from suitable personal pension funds- provided you qualify to do so.
b) There are lenders who will advance monies from your family home by way of a second charge over the property. This is known as a Secured Personal Loan. Funding will be dependent upon 1. Your level of income 2. The Total Loan to value.
c) Through providing a lender with a second charge over a Buy to Let property. This is also a Secured Personal Loan and is based upon 1. The level of rental income; 2.The Total Loan to value.
In certain instances an SPL can be taken out over a considerable period of time in order to minimise monthly repayments AND repaid early with only a “minimal” penalty.
Investing your own money.
Investing your own money in your business can have its advantages. By contributing it as a Director’s Loan will enable you, through time to “withdraw” and “recover” your investment. This of course is dependent upon the ability of the business to “repay.”
Take advice from your Accountant.
However should you be borrowing funds from a conventional bank they could insist that you postpone repayment to yourself until they have been repaid, either in part or in full.
Alternative Sources of Funding.
1. Local Authority/Government Department.
Check with your local authority or indeed a Government Department to ascertain if you and indeed your business qualifies for “assistance.”
2. Privately Funded Local Authority Lenders.
Some local authorities may additionally have set up separate entities to consider funding applications.
3. Community Development Finance Institutions.
This is a network of Independent Institutions prepared to lend to certain industry sectors. The amount available could be restricted and in some instances they can consider “matching funds” already obtained either personally or through another funding institution.
4. Crowd Funding.
This Internet based lending and has become very popular and indeed effective.
This is where “investors” are invited to deposit with a “company” a sum of money of their choice in order that when the “company” receives applications for funding and once the applicant has “passed” the initial “credit check”, the application goes out to auction. The Investor can then indicate “how much” they are prepared to commit and at “what rate of interest.”
This financial tool is for the meantime restricted to Limited Companies or Limited Liability Partnerships (LLP) where a minimum of two years accountants have been submitted to the appropriate authority. Unlike deposits made with Authorised Banks, where deposits up to a certain level are “guaranteed”, this is NOT the case with Crowd Funding.
5. Invoice Finance/Factoring.
When a new product or brand is taken to market it is important that the business has the relative cash-flow in order to meet its financial commitments and indeed continue to produce/manufacture. Whilst a long established financial tool, which for the wrong reasons may not always have enjoyed the respect that it deserved, this funding tool is now seen as very effective. It allows the business providing the goods to obtain an agreed percentage of the Invoice issued to the client. Instead of “waiting” for many weeks to be paid, the agreed percentage is made almost immediately thereby ensuring suitable and sustainable “cash flow”.
There are also Financial Institutions which can fund a “one off” expense or substantial invoice.
6. Private Investors/Business Angels.
An important factor when considering “growing” your business. Be prepared to consider “giving up” a portion of the shares in your Company. Take advice from the relative professionals to consider ALL the implications involved. In the UK there are “tax benefits” to potential investors considering investing in approved sectors. Be prepared however as they may not be in for the “long haul” and you may require to have in place an exit strategy after a prescribed number of years.
7. Franchise/Licence your products/brands.
Provided you have a “track record” this could be an ideal way to further inject “cash” into your business as well as providing a route to market your products/brands.
8. Merchant Cash Advances.
Obtain an advance based on the utilisation of your Visa/MasterCard processing. If you are processing on average £10,000 a month. your likely advance will be no more than £10,000. Some exceptions can be made for merchants who are all or almost all credit card volume and those with large amounts of debit Card or American Express volume.
9. Consumer Credit Solutions
Certain businesses can provide a range of consumer finance options to amongst others the home improvement market,and the renewables industry ( solar panels, wind turbines, the niche sectors of mobility and cosmetic surgery. They assist these companies in the provision of credit plans to their clients.
Funding for your product and service is essential to the promotion of your business.
Take the appropriate professional advice; be prepared to commit your time, energy and personal resources to your business. Plan ahead, employ the appropriate staff, take advice on ALL Accountancy, Funding, Legal and HR aspects; and oh yes, make sure that you have the appropriate Terms and Conditions for your business.
Part of this article was published in the February 2013 edition of Brand Quarterly. Show Me The Money – Funding The Brand : CER Article in Brand Quarterly
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