Published on October 28th, 2013 | by Pete1
Start-up finance: what happens when the money runs out?
One of the earliest challenges faced by all entrepreneurs revolves around small business finance. No matter how great an idea you’ve had an no matter how well thought-out your business plan, you’ll need to source some start-up funding in order to get your fledgling company off of the ground. Different entrepreneurs take different approaches to start-up finance; some will pursue crowdfunding, others will borrow money from their friends and relatives, many will turn to the high street banks for business loans while still others will approach alternative finance providers for help instead. Regardless of the route you choose, however, every small business will inevitably face the same question after sourcing start-up funding: what happens when the money runs out?
No matter how big your loan or how robust your budget prior to setting up your business, those start-up funds will inevitably be exhausted before too long. Where will that leave your company? What happens to the UK’s small businesses in the infrequently-discussed phase following conception and prior to growth? Here’s a deeper look at the shape of UK small businesses once the start-up finance kitty has run dry…
You’ll hopefully be self-sufficient
Naturally, start-up funding is intended to give UK businesses a chance to get off the ground. In the very earliest stages of a company’s life it is almost guaranteed to be operating at a loss, and those expenses will need to be covered somehow. You’ll need to invest in business premises, staff, equipment and more besides, so start-up finance is a necessary step in order to see your company through those hard, frightening and exciting early months. If all goes to plan, start-up funding should act as a stepping stone to see your company become self-sufficient before the cash runs completely dry. Very few start-ups operate at a profit for the first few years, but if you’ve played your cards right, you’ll be breaking even before your start-up funds are all spent.
You’ll have run up some debts
Regardless of whether your company has managed to become self-sufficient or not during its first few months in operation, you’re guaranteed to have run up a few debts along the way. The most significant of these, of course, will be your start-up finance itself. While the majority of start-up finance facilities will have relatively flexible repayment terms, you’ll still be asked to settle those debts, plus fees and interest, in short order. If you’re particularly unlucky, your start-up finance will have proved insufficient to cover your day-to-day expenses, and you may find that you owe money to your employees, providers or suppliers, too…
Your business may have stagnated
While start-up finance is extremely useful for those businesses looking to get up and running from the off, it’s less useful for promoting growth over time. You may have found that your company has expanded over the first few months of its life and is now in a strong position, but then the money runs out as your start-up finance is exhausted. What do you do then? Many fledgling businesses find that a period of rapid growth is followed by a prolonged period of stagnation as start-up finance allows them to expand beyond their means.
You can actively pursue growth
Businesses aren’t doomed to stagnate once the initial cash injection provided by start-up finance has run dry, however. It is possible to be proactive and pursue growth during the period when many fledgling firms find it difficult to compete, even when a restrictive economy makes business opportunities difficult to come by. Building momentum can be difficult at this stage, but if you’ve got the right people around you and have built a team of committed, hardworking individuals then it’s eminently possible to get moving in the right direction once more. Sometimes, however, it’s necessary to pursue another form of business finance if you are to move from stagnation to expansion once more.
You may need more financial assistance
The business world is built on finance, and until a company has reached the stage where it is sufficiently profitable to support its own growth and sustainability, it must rely on the assistance of small business finance facilities instead. Invoice finance providers can offer facilities that will fund growth based on your company’s internal sales ledger, allowing you to invest in the new staff, premises and technologies needed to take your business to the next level. Alternative lending options such as invoice finance and discounting are more flexible and thus more suitable for growing companies than traditional bank loans, so if you’re looking to move your company forwards without incurring additional debts to pile on top of those left by your start-up finance facility, you’re likely to benefit significantly.
The period immediately following your business’ first few months can be an intimidating and confusing one, and it may seem as though the last thing you want to do after your small business funding has all been spent is pursue yet more finance. Sometimes, however, it’s necessary to take the bull by the horns and actively pursue growth in order to spare your business from years spent merely treading water and making ends meet.