Getting on the ladder to business success
Content supplied by Barclays
So you've got your business up and running, but now you need extra cash to help it flourish. Here we consider the questions you need to answer before you approach your bank to get guidance and help.
Do I need bank finance, or could I find additional funding elsewhere? | Do I have a good track record? | Am I showing my personal financial commitment to the business? | Do I have a clear plan? | Have I costed and forecasted fully?
An injection of cash may seem like the perfect solution to help grow your business, but before you visit your bank manager, you need to make sure that getting a loan is the right thing for your business.
Is there another way of boosting your income without taking on fresh debt? And if not, are you confident you can comfortably afford to repay the loan without putting your cash flow or assets at risk?
As a lender, the bank needs to feel confident you can repay your debt before a business loan can be approved, so it will help if you can demonstrate that the money will be repaid under the terms of the agreement.
Barclays, for example, will need to understand your business track record so far, including an up-to-date balance sheet and profit-and-loss account, together with a 12-month forecast and an explanation of the assumptions made in the preparation of that forecast.
You will also need to include all costs relevant to the financing including all your operating and insurance costs.
It's harder for a bank to grant loans to businesses which have previously gone overdrawn without permission, even if there was a good reason behind it, so it's always best to speak to your bank as early as possible.
A good place to start is to write down the answers to the list of questions below:
- Does your bank account regularly go into the red or over its overdraft limit?
- If so, there may be good reasons - do you know what they are?
- Do you have readily accessible funds for a "rainy day"?
- Are you able to pay your suppliers on time or do you feel constantly under pressure?
- Are you making a profit?
- How do your sales and profit compare to previous years? Is the profit growing in line with sales or not?
- When was the last time you reviewed your overheads? Are you in control of them?
- Does your business have sound cost control systems in place?
- Do you produce regular management accounts?
- If so, when reviewing them, how do the figures compare with your annual accounts?
- Are your sales increasing or decreasing?
- Have you noticed any unusual trends?
Banks decide whether to provide funding based on the credit-worthiness of your proposal - hence the need for those all-important accounts.
You will find it much easier to get finance if both the business, and you as the owner, have a clean financial record and all credit checks give a positive result.
So it's vital to keep on top of both your own finances and those of your business, ensuring your accounts are up to date and completely accurate.
A bank is more likely to lend if you can show you are committed to the business. All the following will help to prove how committed you are:
Prepare a personal budget planner and asset statement
As a potential investor or lender in your business, a bank will want to know as much as possible about your background, level of assets and commitment to the business, such as how much you and your business partners have invested and withdrawn from the business to date. This shows you understand each party has an active interest in the success and failure of the business because of their stake in it and highlights your intention to make sure it succeeds.
When you are outlining each person's investment in your business, remember that a stake can be anything from the equipment a business already owns or a share in the property from which you operate. Essentially it demonstrates evidence of your investment, but if you are unsure your local Barclays Business Manager can help you understand what this involves.
Think about a personal guarantee
If you're a company seeking extra finance, it may help a lender to approve a loan if you can show you're willing to contribute additional funding as well. A personal guarantee backed up by your personal assets, where you agree to honour the company's repayment obligations if the company doesn't, is a great way to instil confidence.
Barclays can help you explore different finance options and what you can do to get your business in the best position.
Offer security for the loan
You could also use your business assets as security against a business loan, such as property or sales. You could even borrow against the value of outstanding invoices while you wait for payment through sales invoicing - so you could get up to 85% of your outstanding invoice values into your account within 24 hours.
Any property used as security, which may include your home, may be repossessed if you do not keep up the repayments on your mortgage.
Consider how you want to grow
There are four ways to grow and improve revenue:
- Sell more of your current product or service to your existing customers
- Sell your current product into a new market, eg into a new city or through the internet
- Develop or buy in new products to sell to your existing customer base
- Develop or buy in new products to sell to a new market
Of course, developing new products and selling to a fresh customer base carries risk, so it's vital to balance any possible increase in sales against the cost of winning over new customers, and to manage stock levels so you're not left with a warehouse full of unsold products.
Have a look at our free guide on writing your business plan to get you on your way to success.
Take advantage of opportunities
There's more than one way to ramp up your share of the market - snapping up a competitor company, for example - so it's worth being alert to new opportunities and working partnerships. Known as 'acquisition', this generally calls for more business funding. If you are considering making an acquisition then it's best to discuss your plan with a local Barclays Business Manager at the earliest opportunity.
Find out more
Get more advice from Barclays on how you can help your business grow and find out more about some of the software packages available if you have a Barclays Business current account, such as Barclays Business Manager
It's easy to underestimate how much cash you need to break into a new market, launch a product or even take on a major supply contract, so keep a grip on your potential outgoings by keeping a weekly cash forecast. This should include costs for everything and forecast cash flow as far ahead as possible.
Get more tips on how to keep on top of your cash flow and why it's so important to stay in control.
Have a look at this sample cash flow forecast to see how it's done.
This plan will go a long way in helping a bank decide whether to offer you funding, so make sure you have as much hard information as possible and review your cash flow each month.
Be market aware
You may be enjoying a boom in business, but do you have a contingency plan should a rival company catch on to your good idea and compete with you for customers, or should demand for your product or service drop off?
It's impossible to always predict what's around the corner, so look carefully at your current market in terms of your available customer base and your competitors. Then you can begin to build a plan for sustainable growth. If your market is limited for example, think about ways to shore up your revenue stream and include it in your forecast.
Find out more
You can't run a business without customers. Barclays offer a wealth of advice on how to attract new customers and expand your business to its full potential.
Head to Barclays on Mumsnet for lots more:
- Expert information on starting your own business
- Family budgeting and saving tips
- Money-saving videos and inspiring start-up videos
Barclays Bank plc takes no responsibility for the content of third party websites or the views and recommendations expressed by named third parties in this webpage. The material on this webpage is for information only. Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England. Registered No. 1026167. Registered office: 1 Churchill Place, London E14 5HP. Barclays Insurance Services Company Limited is authorised and regulated by the FSA. Registered No 973765. Registered Office for both: 1 Churchill Place, London, E14 5HP. Barclays Business is a trading name of Barclays Bank PLC. Barclays Bank PLC subscribes to the Lending Code which is monitored and enforced by the Lending Standards Board and is licensed and regulated by the Office of Fair Trading for the provision of credit products to consumers and related services. Further details can be found at www.lendingstandardsboard.org.uk
Last updated: about 3 years ago