Finance for Start-Ups UK
Why Finance Matters for Start-Ups?
One of the biggest obstacles for budding entrepreneurs or small business owners is financing their start-up business.
Financing for start-ups is a vital part of any business’s success. It provides the resources necessary to get a business up and running and allows the company to grow and expand. There are several financing options available for start-ups
In this guide, we aim to identify the finance options available and their respective pros and cons.
Forecasting & Budgeting for Start-Ups
Forecasting and budgeting are essential components of any successful start-up. By forecasting and budgeting, start-ups can better plan for future expenses and income, allowing them to make more informed decisions and remain on track.
When it comes to forecasting, start-ups should take into account both short-term and long-term trends. This means looking at both the current market and industry trends, as well as any potential changes in the future. Start-ups should also consider their expected growth and how this may affect their budget.
When it comes to budgeting, start-ups should create a detailed budget that covers all of their expenses. This should include both fixed and variable expenses. Start-ups should also look at their expected income and make sure it is sufficient to cover their expenses.
Forecasting and budgeting are essential for start-ups to ensure that they have enough cash to cover their current and future needs. By creating a detailed and accurate budget, start-ups can better plan for the future and remain on track.
Start-Up Costs
Calculating the costs associated with a start-up is a critical step for entrepreneurs. As a start-up, it is important to thoroughly calculate the costs of setting up the business and operating it daily.
First, entrepreneurs should determine the initial capital required to start their businesses. This includes the cost of renting or purchasing a space, purchasing equipment, and any other startup costs.
Next, entrepreneurs should calculate the cost of running the business daily. This includes the cost of salaries, utilities, and supplies, as well as any other costs associated with running the business.
Finally, entrepreneurs should calculate the cost of marketing and advertising. This includes any costs associated with creating a website, as well as costs associated with print, radio, and television advertising.
By calculating the costs associated with a start-up, entrepreneurs can ensure that they have enough capital to cover their expenses and remain in business. This step is essential to ensure the success of any start-up.
Breakeven Point
The breakeven point is an important calculation for any start-up. This calculation shows when a start-up will break even and begin to generate a profit.
To calculate the breakeven point, entrepreneurs will need to determine their fixed costs, variable costs, and total revenue. Fixed costs are expenses that remain the same regardless of sales, such as rent and insurance. Variable costs are costs that change with sales, such as materials and labour. Total revenue is the amount of money generated by sales.
Once these figures are determined, the total fixed costs and variable costs are added together. This total is then divided by the total revenue. The result is the breakeven point or the number of units that must be sold to break even.
By calculating the breakeven point, entrepreneurs can better understand how much product they must sell to make a profit. This calculation is an essential step for any start-up.
Working Capital for Start-Ups
Working capital is the capital available within a business for use in its day-to-day activities and remaining solvent. Working capital can be calculated using the formula: assets - liabilities = working capital.
Take for instance ABC Ltd. The business has assets (cash in the bank, raw materials, inventory, accounts receivable) of £100,000 and liabilities (accounts payable, loans, outstanding tax) of £70,000. Meaning ABC Ltd has a working capital of £30,000.
Cash Is King for Start-Ups
The old saying “cash is king” definitely applies to start-ups. Start-ups need to ensure that they have enough cash on hand to fund their operations, pay their employees, and handle any unexpected costs that may arise. Cash flow is one of the most important components of any business, and start-ups must be especially aware of this.
Since start-ups typically have limited access to traditional credit, they must rely on cash to sustain operations. This means that start-ups must be especially careful when it comes to budgeting and financial planning. They should plan to have enough cash on hand to cover at least six months of operating expenses.
Start-ups must also be aware of their cash flow cycles. Some businesses have seasonal cycles, with different levels of sales and expenses throughout the year, and start-ups should plan accordingly to ensure that they have enough cash to cover these fluctuations.
Ultimately, cash is the fuel that drives start-ups. Without it, start-ups cannot grow and expand. Start-ups must be diligent about budgeting and financial planning to ensure that they have enough cash to cover their current and future needs.
Accounting for Start-Ups in the UK
Unless you're an accountant, you're probably going to need to find one to prepare your annual filings to Companies House & HMRC. A good accountant will help you as a business owner establish robust bookkeeping and payroll procedures.
While there's no legal obligation to hire an accountant, it is advisable to ensure your business filings are correct and that you have made use of the tax savings available. Want to know more about finding a good accountant
Tax for Start-Ups
Tax requirements for start-ups can vary greatly depending on the type of business and the location. In the UK, businesses should register with HMRC and obtain their Unique Tax Reference Number (UTR). Depending on the business structure you may also have to register with Companies House if you wish to be a Limited Company.
As a business, you are required to determine which taxes you are required to pay and when those taxes are due. Common taxes for start-ups include:
Corporation Tax
Value Added Tax (VAT)
National Insurance Contributions
Employers National Insurance
Pay As You Earn (PAYE)
Self Assessment for Directors and Shareholders
Funding for Start-Ups
There are several funding options available for starting a business:
Start-Up Loans
Start-ups can make use of The Start-Up Loans Company to loan up to £25,000 for up to 5 years. The loan is a personal unsecured loan against the individual and The Start-Up Loans Company includes 12 months of free mentoring.
It is important to understand that if you default on the loan it will affect your credit rating.
Owners Equity for Start-Ups
Owners Equity for Start-Ups is an important concept to understand when starting a new business. Owners' equity is the difference between a business’s total assets and total liabilities. It represents the funds that the business owners have invested in the business.
Owners' equity is also known as net worth or shareholders' equity. It is important to understand owners' equity because it affects the business’s ability to obtain financing. Banks and other lenders will look at a business’s owners' equity when evaluating the company's creditworthiness.
Owners' equity is also important for start-ups because it is often used to cover start-up costs. If a start-up does not have enough cash to cover its start-up costs, owners' equity can be used to bridge the gap.
Owners' equity is an important concept for any start-up to understand. Start-ups need to ensure that they have enough owners' equity to cover their start-up costs and to obtain financing, if needed.
Equity Investing for Start-Ups
Equity investing is a popular way for start-ups to raise capital. Equity investing involves raising money from investors in exchange for a stake in the company.
When it comes to equity investing, start-ups should develop a comprehensive business plan that outlines the company’s goals and objectives. This plan should include detailed projections of the company’s revenue and expenses, as well as a timeline for achieving these goals.
Start-ups should also research potential investors and determine which ones are the best fit for their business. Start-ups should look for investors who have experience in their industry and who are likely to be interested in their business.
Equity investing is a great way for start-ups to raise capital. However, start-ups need to do their research and plan carefully to ensure that they find the right investors.
Grants for Start-Ups
Grants are a great way for start-ups to get the funding they need to get their business off the ground. Grants are typically provided by government agencies or private foundations, and they can provide the capital that start-ups need to cover the costs of launching their business.
When applying for grants, start-ups should research the various available grants and determine which ones are the best fit for their business. Start-ups should also carefully read the application requirements and make sure that they meet all the criteria before submitting their application.
Grants are a great way for start-ups to get the capital they need to get their business off the ground. By researching the available grants and carefully completing the application process, start-ups can increase their chances of getting the funding they need.
Enterprise Allowance for Start-Ups in the UK
The Enterprise Allowance in the UK is a great way for start-ups to get the funding they need to get their business off the ground. The Enterprise Allowance provides financial support to those who are starting their own business.
The Enterprise Allowance provides start-ups with a weekly living allowance and a business development grant. The business development grant can be used to cover expenses such as rent, equipment, and supplies. The allowance is typically paid for up to 26 weeks.
To be eligible for the Enterprise Allowance, start-ups must meet certain criteria. These include being over 18 years old, being unemployed or on a low income, and having a viable business plan.
The Enterprise Allowance is a great way for start-ups to get the funding they need to get their business off the ground. By meeting the eligibility criteria and carefully completing the application process, start-ups can increase their chances of getting the funding they need.
Invoicing Financing for Start-Ups
Invoice financing is an increasingly popular way for start-ups to access the capital they need to cover their expenses. Invoice financing allows start-ups to use their unpaid invoices as collateral for a loan.
When it comes to invoicing financing, start-ups should carefully research their options and make sure that they understand the terms and conditions of the loan. Start-ups should also make sure that they have a reliable system for tracking their invoices and payments.
Invoice financing is a great way for start-ups to access the capital they need to cover their expenses. By carefully researching their options and making sure that they have a reliable system for tracking invoices and payments, start-ups can increase their chances of getting the funding they need.
Bank Overdraft for Start-Ups
Bank overdrafts are an extremely popular form of financing for start-ups. They are an attractive option because they are relatively easy to obtain and provide short-term financing when needed. Overdrafts allow businesses to access funds when needed, without having to commit to long-term debt or equity financing.
Credit Card for Start-Ups
Credit cards are a popular form of financing for start-ups, as they are an easy and convenient way to access capital. Credit cards can be used to cover short-term expenses and help manage cash flow. They are also a good option for those who have poor credit histories, as they often require no credit check.
Community Schemes for Start-Ups
Community schemes are becoming increasingly popular as a form of financing for start-ups. They involve individuals, businesses and other organizations investing in a start-up in exchange for equity or other benefits. This type of financing can be a good option for start-ups that need capital but do not want to give up control of their company.
Crowdfunding for Start-Ups
Crowdfunding is an increasingly popular form of financing for start-ups. It involves raising money from a large number of people, usually online, to fund a project or business. Crowdfunding is a great option for start-ups as it provides access to capital without having to give up control of the business.
What you will need to gain financing for a Start-Up?
In order to gain financing for a start-up, you will need to have a clear plan of how the capital will be used and what the expected returns are. You will also need to have a clear understanding of the risks associated with the business, as investors will want to understand what the potential risks are before investing. Additionally, you will need to show potential investors that you have a viable business model, with a well-researched and thought-out strategy. Finally, you will need to demonstrate that you have the necessary skills and experience to manage the business and ensure its success.
Do you need help to gain financing?
If you need help producing a business plan, forecasting your Profit and Loss or figuring out what financing is best for your business. Get in touch today!