Funding a start-up business

If you want to start a business, you will need start-up funding. This can come from a variety of sources, including everything from personal loans by friends and family members, to investment by venture capital firms or angel investors. The right approach for your needs will depend on the scale of your ambition, but there are many options to consider.

You will also need to take several steps towards managing your financial commitments if you take out business loans, and you will have important tax, accounting and bookkeeping responsibilities to meet. With all of this in mind, it is often worthwhile to engage support from financial experts at the earliest stages of the process. This can help to make sure you are fully prepared to meet your obligations and keep your financial plans on track.

Here, the business accounting experts at Monetta offer some key information about financing a start-up, finding the right funding and starting on the path to success. When you have secured financial support and are ready for accounting, bookkeeping and other key services, contact your local Monetta office to find out how we can help.

What are a business’ start-up costs?

Every business will need to pay certain start-up costs, and grants can often help to cover these expenses. When trying to determine how much funding you need, think about the following costs and services, and whether or not they will apply to your business:

• Rent and utilities for business premises
• Equipment
• Hardware and software
• Inventory, materials or supplies
• Recruitment costs and salaries
• Training for staff
• Accounting services
• Legal fees
• Marketing and branding
• Company registration fees
• Licences or permits
• Insurance
• Taxes

These costs will arise at different times during the process of launching your business, and you will not need to pay them all at once. However, calculating your initial costs will help you to manage the financial aspects of this process more effectively.

Working with an experienced accountant can help you save on certain costs. They may be able to identify government schemes, tax allowances and reliefs, or other ways to save money. Everything from your company structure to the terms of a secured bank loan can be reviewed to make sure your new business is tax and cost-efficient. 

What business grants are available?

All businesses need to raise capital when they first start, whether that comes from personal savings, a business loan or private equity funding. Government funding is usually one of the best options for new businesses, and especially when this comes in the form of start-up and small business grants. 

It is not always easy to understand which government grants or opportunities will work best for you, given that there are over 200 grants available for small businesses in the UK, and all of them involve potentially complex eligibility requirements. However, a grant may allow you to start your business without incurring debt, which can put you in a strong financial position once you start trading. This is often the only method of raising capital where you will not incur any debt, aside from using your own money to fund your business idea.

Not every grant is a government grant - funds may be provided by a non-governmental organisation or a private enterprise. In these cases, they are usually earmarked for particular purposes, such as research and development or business expansion. Government grants in the UK can provide as much as £500,000 in start-up costs for your business.

Some of the most popular types of grants include:

• Regional grants: many regional governments in the UK offer business grants for start-ups in their local area. 
• Industry grants: the UK government offers money for SMEs for specific sectors, such as for charity and social enterprises or telecommunications organisations.
• National grants: organisations like Innovate UK support expansion and product development for businesses across the UK.

For more information about securing investment for your business, visit the UK Government’s business finance website. It can also be worthwhile to seek guidance from a business finance expert to ensure that your start-up funding is structured well and suitable for your needs.

Can a grant provide all of my start-up costs?

In many cases, you need to prove that you can fund part or most of your business’ start-up costs to be eligible for a grant. For example, some grants may ask you to demonstrate that you are providing at least 50% of a project’s costs, or set maximums on how much funding you can receive based on the total estimated value of your business.

It is important to research the funding options that are available or discuss your business’ financial structure with an expert accountant when you make your business plan. That way, you can be sure to account for restrictions such as these, and have a strong sense of how you will afford everything you need. You may also need to supply this information to your grant provider in order to have your funding approved.

What are the best options outside business grants?

As well as grants, you have the option to take out a soft loan. This is a type of government-approved loan with a minimal interest rate and more lenient terms than other types of loan. The terms of these loans are often designed specifically to support small businesses, which can make them a useful option if you are ineligible for a grant.

There is also a government-backed Start Up Loan scheme, through which you can secure between £500 and £25,000 to launch or grow your business. This is paid back over a period of between one and five years, at a fixed interest rate of 6% per year, and does not charge any fees to apply or make an early repayment. 

Another possibility is equity finance, which means selling a share of your business in exchange for the start-up funding you need. While this means sharing a percentage of your long-term profits, it may be the most effective way to launch your business. After all, those long-term profits will not exist unless your business gets off the ground in the first place.

Beyond these options, there are the usual considerations of working with venture capital firms, private equity firms, angel investors or equity crowdfunding. These approaches can be more complicated than government funding, but they may be necessary for larger-scale business ideas. Working with a financial advisor can help you to get the most from your relationship with a venture capital firm or private investor, and launch your start-up business with minimal risk.

For more information on financing options, you can visit the Better Business Finance website for impartial advice.

What about once my business is up and running?

Your financial responsibilities will increase once your business starts its operations. You will need to record every transaction your company makes, including both incoming and outgoing funds, which means implementing an efficient and effective bookkeeping process. You must calculate your tax obligations in terms of PAYE, Corporation Tax and, in some cases, VAT. To ensure the longevity of your business, you may need cash flow forecasts and real-time access to data, which must be accurate and reliable.

While it may seem difficult to find the right funding, everything that follows can be even more complicated. That’s where working with an expert business accountant can make the biggest difference.

The chartered accountants at Monetta offer a number of useful services to help. We can advise you on bookkeeping software packages and provide training for your staff, or take on those responsibilities for you. We can support you with preparing management accounts and use cloud-based accounting to give you real-time access to business insights. Alongside all this, we will make sure you meet your legal obligations in terms of financial reporting and filing taxes.

If you have secured business funding and are ready to take the next steps, or you need advice on where to go from here, get in touch with Monetta today. Call or email your local office, or use the enquiry form on our website, to learn how we can help.