Rich Preece, Europe VP and Managing Director at Intuit
Starting and growing a business can be challenging in today’s competitive market. While many famous entrepreneurs have admitted to using their own funds to keep their own business afloat, this can often lead to very pressured personal finance situations and a never ending circle of borrowing cash. Just ask Kanye West, who recently asked Mark Zuckerberg to lend him $1bn via Twitter to keep his business ventures afloat. While we may not know exactly how Kanye funds his companies, recent research has revealed that many start-up firms are still too reliant on credit cards, with more than half using credit to keep their businesses alive.
Of course, while many entrepreneurs have an innate risk-seeking trait, often early-stage businesses rely too much on additional personal cash to keep their businesses alive. While we understand that this may seem like the easiest option, there are alternative ways to fuel funding. Here, I outline the three key things to remember when thinking about your organisation’s finances.
- Don’t just rely on traditional forms of funding
The UK’s alternative finance market grew by 84% last year to £3.2bn, with more than one million people lending, investing or donating money through various platforms to more than 250,000 individuals. The largest single form of alternative finance was peer-to-peer lending (P2P), with services such as Zopa, Ratesetter and Funding Circle gathering pace, as an increasing number of individuals turn to it to give their business a boost in cash.
P2P lending is rapidly growing in popularity and opens many doors for small businesses. However, with such attractive offers dazzling entrepreneurs, it is important for both lenders and borrowers to stay informed of the associated benefits and risks so that they can make the most out of the platforms and fuel future business growth.
Raising capital online through a variety of backers, also known as crowdfunding, has become another attractive prospect for entrepreneurs, especially those who have faced difficulty in securing business loans from high street banks. Indeed, the market soared by 295% to £332m in 2015, as companies such as BrewDog and mobile challenger bank Mondo, turned to crowdfunding to raise funds for their business ventures.
- Seek advice from financial experts
With access to funding remaining difficult for many entrepreneurs, increasing numbers are coming to rely on financial experts to support them. Today, over two-thirds of SMEs expect their accountants to provide strategic business advice and counsel alongside their standard bookkeeping services. As the role of accountants continues to evolve, entrepreneurs across the UK are becoming more reliant on them for advice on funding, business growth and the changing economic landscape.
- Keep on top of your finances
Securing funding isn’t the only hurdle entrepreneurs face. Once secured, it’s vital to manage finances effectively to sustain a business in the long-run. This involves staying on top of critical processes such as invoicing, cash flow and forecasting. Many entrepreneurs – keen to keep a laser focus on the growth of their business and securing sales – default to paper-based records or Excel spreadsheets to do this. However, this can be counterproductive, as spreadsheets are often time-consuming and complex to manage. Those that are really getting to grips with their finances are turning to smarter, cloud-based technology, that enables all processes to be managed from one place, automatically updated and accessed from anywhere. A recent study found that 37% of SMEs are already moving to the cloud, a figure that is set to rise to 78% by 2020. Adopting such an approach frees up time often spent on financial admin to focus on strategy and innovation, which will help the bottom line.
Managing finances is very much an ongoing process, one that will determine the success of the business. Whichever financing option you choose, always do your research and consider all the options available, from bank loans to government-backed initiatives. Assessing the benefits and pitfalls for each will help you determine the one that best meets your needs to grow a successful business. This also means that getting support from third parties and the right technology in place are critical to ensuring the business runs as efficiently as possible not just today, but in the years ahead.