Funding in a nutshell
Funding is about putting money into a business, usually to start, run or grow it. The ‘right’ funding depends on what you need it for, and why.
For example, you might need to:
- buy a computer for your start-up
- build a prototype
- invest in equipment to make a new range of products
- fund research and development (R&D) initiatives.
Funding could come from different sources, such as investment or loans. But funding isn’t money from business-as-usual activities, such as customers paying for your goods or services.
New business owners often put their own money into their business. Once your business grows and you can show a good track record, getting funding becomes easier.
How much you need depends on your costs
Each business will need a different amount of money to start and keep going. To work out how much yours will need, ask yourself:
- what one-off costs will I have? - These could be buying tools, building a website, or fitting out a café.
- what costs will be fixed, no matter how much business I have? - These are your fixed costs or overheads. Some might be paid monthly, like rent and salaries. Others might be paid every few months, like rates, or yearly, like certification.
- what costs will depend on how much business I have? - These are your variable costs. Raw materials and ingredients are good examples. If you sell more coffee, you’ll need more coffee beans and milk.
When you’ve finished estimating, consider adding a buffer for unexpected costs, like repairs or bills you may have overlooked. You could also ask an accountant to help you estimate.
Choose funding that’s right for you
Each type of funding will suit different situations. For example, what stage is your business at? Are you about to start? Or have you been in business for a few years and have plans to expand or develop a new product?
Think about what the lender or investor has to offer. For example, if you’re borrowing from a bank, what loans do they offer businesses of your size and in your industry? If you’re getting investment, which investor might understand what you’re doing? Could they support you with experience or contacts?
Your preferences and personality matter. You may be borrowing for your business, but behind that business is a person – you. Think about your priorities. Investors may want you to grow, or to have a say in your decisions.
Appeal to funders by doing your homework
The best way of persuading someone to give you their money is to show you know what you’re doing. You’ll need to be able to answer tough questions with facts and figures.
Show you’ve thought through what you need, what the risks are, and what you’ll do if things don’t work out.
Prepare a solid business plan to convince your prospective lender or investor that:
- your product or service will be in demand
- your business can succeed
- you can make your idea work.
From followers to funders
Clothing designer Anika needs to buy more fastenings. She decides to crowdfund by offering her Instagram followers a range of rewards, from discounts to personal styling sessions, in return for different amounts of money. Her idea is an instant hit, and she raises enough to buy her fastenings.
What's next
Guide to business tax
Paying employees
Reducing your tax bill
Getting government grants
Business finance basics