If you want to grow your business, you’ll almost certainly need funds to finance any expansion plans. Work out if the business has any existing funds that could be released, then assess how much more you’ll need to borrow or get from investors.
Use spare business cash
If you’re lucky enough to have surplus funds in your business bank accounts that aren’t needed for the day-to-day running of the business, you could use it for your expansion.
Cut your costs
Work out where you spend money and ways to cut costs:
- Using cheaper suppliers
- Negotiating bulk discounts
- Looking for efficiencies in your running costs
- Shopping around for cheaper utilities such as electricity.
You can offer selected employees the chance to work for reduced pay in exchange for the option to buy an equity stake in the business at a fixed price at some point in the future. This keeps staff motivated to achieve targets, whilst cutting the wage bill for the business.
Sell assets you no longer need
Examine your asset base – could anything be sold for cash? Such as:
- Investment property that’s not providing a great return
- Inefficient or underused plant/machinery
- Pool cars that are seldom used.
Manage your working capital more effectively
Get an injection of cash by shortening the cash operating cycle:
- Collect cash in from customers more quickly
- Hold less stock for a shorter period.
Options for raising capital are more varied than they have been in the past. Which you choose may well depend on the circumstances of your business and how much you need to borrow. If say, you’re a plumber wanting to set up on your own, you may need capital to buy a van and tools and pay for advertising. In this case, a loan might be sufficient. But if you have an idea and proof of concept for a new innovation, you may need an angel investor for a much larger amount to help fund production.
Types of funding broadly fall into two categories:
- debt – where you borrow money and pay it back with interest
- equity – where you give up a share of your business for the money.
The following sections look at these in more detail.
There are a wide variety of debt options. What lenders are prepared to offer you and at what interest rate may depend on your record, whether you can offer security on the loan and how likely they think your plans are to succeed. You could borrow money by:
- using a bank overdraft
- taking out a loan from a bank
- remortgaging your home or business premises
- borrowing from friends and family
- using a peer-to-peer lending platform
- using asset finance
- using an invoice finance facility.
Read our business lending guide.
Raising money via equity means that someone will give you money to set up and run your business in return for a share of the business. Equity funding can come from:
- friends or family willing to invest who get a share of your business rather than being paid back for a loan. If doing this, make sure you draw up a formal document about what you have agreed to avoid bad feeling further down the line.
- angel investors – individuals who specialise in lending their own money to early-stage businesses and also act as mentors for a share in the company.
- private equity firms – companies that invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
- venture capital firms – companies whose business is to invest in smaller businesses with high growth potential, in return for a share of that business.
- crowdfunding – using an online platform, investors buy shares in a company to help it grow.
Whichever route you choose, all investors will want to be reassured that your business is a sound proposition and that your figures add up. That is why you need a robust business plan.
If you are successful in raising the funds you need, you then need to have robust financial management systems in place. In your planning you will need to consider the practicalities of managing your business’s finances. You'll need to review the way you bookkeep and monitor your income and expenditure from day-to-day to make sure it’s now fit for purpose. You can use this to compare your progress against your original plan and produce more accurate forecasts. You will need to decide:
- whether your accounting and financial management systems will be robust enough for your larger business.
- how you will keep track of any tax payments you need to make, especially if you expand internationally.
- how you will keep track of cash flow.
- what systems you have in place for ensuring profitability of work or products.
- how you will track and have oversight of your performance against your business plan.
Keeping on top of your finances is essential for any successful business, adjusting plans when necessary.
There are lots of sources of help and advice available for businesses, including useful government help.
HMRC Business Guidance
If you want help with tax-related issues, HM Revenue & Customs (HMRC) offers a variety of online tools and guides.
See a full list of HMRC tools and calculators.
The Business Support Helpline
The UK government’s Business Support Helpline offers advice and guidance to new and existing businesses. It has information on national and local schemes as well as grants and loans to help companies start and grow.
Alternatively, you can use the government's Business Finance and Support Finder Tool. It allows businesses to search for government-backed support and finance as well other mentoring services and support.
Yes Business Can – a guide for entrepreneurs
Our Yes Business Can book offers a wide range of information on financing your business, including options for funding a growing business.
Download your free copy of Yes Business Can.
While all reasonable care has been taken to ensure that the information provided is correct, no liability is accepted by Bank of Scotland for any loss or damage caused to any person relying on any statement or omission. This is for information only and should not be relied upon as offering advice for any set of circumstances. Specific advice should always be sought in each instance.