Plan and manage your finances

Why plan?

You may be starting out or want to make a change. Whatever stage you’re at, you need to plan your finances.

Keeping track

This chapter gives you tips for keeping on top of your financial reporting tasks. It tells you what you need to record and how you can do this.

Record-keeping and bookkeeping tips

Write a cashflow statement

This shows how much cash you have at the end of the week or month.

You can use it to help answer questions like:

• Can I afford to pay my bills or invoices this month?
• Do I have the cash to fix the equipment that broke today?
• Can I buy these stock items that are on sale this week?

Unplanned financial decisions

It’s easy to plan for what you know is ahead. But what about those unexpected costs? Say you had to outsource some work to meet an increase in demand. Would you have all the information you need? 

It's important to prepare so you can work out the costs and revenue linked to every decision. This will help you make choices that support your business and its growth over time. 

Your product-price mix

Setting prices can be complex. You need to bear in mind your overall vision, mission and goals. 

Manage your debts

This could mean keeping up with any monthly payments and not exceeding limits on credit cards or overdrafts. It’s especially important where you already have funding in place. If you’re not managing your debt, it could affect your chances of getting more funding.

Need help to manage your debt? We recommend speaking with your financial services provider(s).

Types of funding

So far, we’ve looked at how to improve the financial health of your business. You’ve seen the type of records to keep and ideas on what goes into a financial plan. All this will be useful as you start to look for funding.

Now let’s focus on the funding itself. Some funding options need you to give others a share in your business. Some are loans that you’ll need to pay back. Others are free but need much more time to apply for. It’s important that you pick what’s right for you and your business. So, as you learn about each option, think about what’s likely to work for you.

The main types of funding are:

What type is right for you?

When picking a funding option, think about your growth goals. You’ll need something that aligns with these.

Here are some factors when looking at funding: 

Top tips on picking the right funding option

• Understand your funding needs – Work out how much you need to raise and what you need it for
• Prepare your business plan – This should include your mission, goals, projections and growth strategy 
• Focus on metrics – Know key metrics such as customer acquisition, revenue and profitability
• Network and build relationships – Go to networking events and speak with other business owners
• Be clear and honest – Be upfront about any risks or challenges you know about
• Prepare for due diligence – Potential investors might want to see detailed financial and legal information 

Find the right investor

Looking for someone to invest in your business? In this chapter, we’ll explore the different types of investor. They key is to look for a good match with your own values and growth aims.  

Business angels

Also known as angel investors, these can be individuals or groups. They often like to invest early on in the life of a business.

With them, you’re likely to get the bonus of their industry knowledge and skills. Some have first-hand experience of growing a business from scratch. So they’ll know exactly what you’re going through. They may have local knowledge too, including useful contacts. Above all, these people are not just interested in their financial return. They fund businesses that interest them personally. 

Some famous angel-backed start-ups include Uber, Spotify and AirBnB.

Think a business angel could help you? Do allow plenty of time to find one who shares your goals and values. 

Crowdfunding

This is where many people invest small sums of money in your business. It’s all done through an online platform. They’ll look at your business to make sure it meets their requirements.

Unlike other types of investors, you may not be selling a share of your business. Instead, you may offer other rewards for their cash. This could be products or services.

Venture Capital (VC)

These funds come from a mix of business experts and investors. They’re looking for businesses with the potential for high returns. Some focus on a single sector – like IT or FinTech.

Usually the funding comes in cycles of 5-7 years. During this time, the investors will expect the business to grow enough to make a decent return for them. They may stay on after this time, to help further growth.

There are government schemes for both startups and growing businesses that mean your investors can get tax breaks.

Interested in VC? It’s worth looking at other businesses who have this type of backing. This will give you a feel for what these investors look for, and what this form of funding looks like. 

Private Equity

Here, one or a group of investors gives you cash for a share in your business.  Say you need new £100,000 for new tools. A group of investors may give you this in return for 20% of your business. Some look to take over businesses where the owner is moving on to other ventures.

They’ll want active involvement in the business as they help it to grow. Then after a period of time, they aim to sell their shares at a profit. 

Boots, Moonpig, Asda and the AA have all taken investment from private equity.

Looking at private equity? It’s good to pitch high – and to look for funders who’ll bring more than just cash. Like networks and expertise in your sector.

Seed funding

When you first start your business, where does the money come from? It could be from your own savings, family or friends, or maybe you have angel or other investors.

This early stage investment is called seed funding. It can be for anything from product development to hiring people to work for you.

Just starting out and low on funds? Look for startup programmes in your area who may be able to help. You may find an investor who likes your idea and is willing to help fund your startup. Other options are available, depending on your business and where you’re based. 

Business loans

You can apply for a loan to help your business from a bank, credit union or other lenders. Unlike equity funding, you won’t be giving up a part of your business. Instead, you’ll agree terms with your lender that cover:

• How much you’ll borrow
• The term – how long you’ll take to repay the loan
• The interest rate they’ll charge

Depending on the lender, you may need to pay a fee or meet certain criteria. All lenders will want to see what you plan to use the loan for, plus proof that you’ll be able to pay it back. You may need to offer up collateral. This is property or other assets that the lender could claim if you weren’t able to repay the loan in full.

Startup loans

The government also offers startup loans. These are personal loans and they’ll run a credit check for this. These loans come with free support and mentoring.

Peer-to-peer (P2P) lending

Not sure about taking out a bank loan? You might want to consider P2P instead. Also known as social or crowd lending, online platforms match individual lenders with borrowers.

So what happens when you apply for this type of loan? The platforms can vary but the process is the same. They’ll check your credit history first. If they accept your application, they’ll match you with individuals willing to offer you a loan.

Invoice finance

Ever found yourself short of funds, while you wait for your customers to pay? Invoice finance is when you use those as-yet unpaid invoices as collateral for short-term loans.

Your lender buys your invoices for a fee (called a discount). They usually pay you around 80-90% of the invoice value, less their fee. They’ll keep the rest of the invoice value, then release this back to you (again, less any fees or charges) once your customer pays the invoice.

Asset-based finance

This option lets you buy new business assets, replace old equipment or expand your operations without having the means to pay for this upfront.

There are different types of asset finance:

Credit cards

Although not appropriate for many funding needs, you may find credit cards are useful to meet short-term cash-flow needs. You do need to be on top of your card spending, though. 

Smart tips for credit card use:

• Make sure you use your business card – not a personal card – to build up your business credit
• Look out for deals – for instance, introductory 0% APR
• Pay on time – keep track of when payments are due and make these promptly

Business grants

There are grants for startups and more mature businesses. They’re a popular choice as there’s nothing to repay and you’re not giving away part of your business either. The Government or other organisations award these grants. Your local authority may be a good place to look for local awards.

As they’re so popular, grant awards are highly competitive. Some have very strict criteria. So read the details carefully, to check you meet these. You’ll need to spend some time and effort completing the application. Plus, the whole process can take a long time. The amount you get from grants can also be lower than you might raise from other options.

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