5 Common Mistakes Small Businesses Make Around Funding
Most businesses find themselves considering additional finance as some point in their growth journey. However, any number of common oversights can prevent your fundraising from being successful. If you’re considering taking out a loan, it is in your best interest to know what to expect.
To make receiving financial help as easy as possible, Let’s Do Business Finance, start-up and growth loan provider across the Southeast and East of England, have provided some of the most common mistakes we’ve seen over the years and the best advice we can offer to prevent them.
Not planning thoroughly enough
To decide whether the big plans you have for your business are practical, lenders need lots of information from you before they can proceed with your finance application. Having a solid business plan is valuable because it neatly lays out who you are, what you want to do, how much experience you have in your field, who you’re targeting, and much more in a digestible way. Some make the mistake of underestimating the importance of a business plan – but it's necessary, whether you’re looking to raise funding or not! Not only does thorough planning help lenders to see your business as a promising investment, but the process of writing one also serves to help you identify and address any underdeveloped elements of your vision. Therefore, it serves to give both sides more confidence in the business.
Solution: There are free templates for business plans all over the internet, so find one and fill it in! If you find that you’re unable to flesh it out, it may be worth taking a step back and refining your original idea. Although this might be frustrating, giving yourself plenty of time to sort out solid foundations for your business is necessary.
Not asking for the right amount of money
Applicants often second-guess the amount of money they will need when asking for financial help. Many ask us for the largest amount we offer. We’re not just being ungenerous if we hesitate to give you the maximum amount – if we don’t, it’s likely either because the amount exceeds what you would need it for, or because we consider it our duty of care to avoid offering more than you can afford. If your business fell through anyway, then you would then be saddled with more debt! The opposite problem also happens, where people don’t ask for enough to sufficiently cover their costs, which means that they are more likely to struggle from the beginning if they don’t at once become successful.
Solution: Do your homework! If you’re not sure, it could be worth looking up indicative quotes and seeking professional advice before continuing further. Utilise services like ours! We’re offering virtual and face-to-face clinics over the course of September to start-ups requiring business support. For more information, see: https://www.letsdobusinessgroup.co.uk/start-up-september
Not getting the right funding for the purpose
You want to ensure that whatever finance you’re raising suits its purpose. In everything from hiring a workspace to taking out a loan, there are legal pitfalls and trip hazards that an underprepared person can easily falter on. If you can secure funding very quickly, it is likely that you’ll have to repay it at an extremely high rate over a very short term. This would be appropriate if it was for the purpose of tiding over cash flow (if there was a delay in an important payment, for instance), but if the future of your business relies on this loan, then it could cripple your business further.
Solution: Be careful who you’re lending from – do thorough research, seek professional advice and compare your funding options. Let's Do Business offers loans with payback rates right for the purpose. If you’re unsure of what kind of finance to get, our friendly team of finance experts can take you through your options. Contact us here.
Not doing risk and contingency management
“But what if...?” You must keep this question in mind when running a business. While we want your business to achieve all its goals, it's important to be prepared for some curveballs and plan for some common risks. What if some equipment breaks? Maybe you could make arrangements with the suppliers for quick deliveries if something has to be replaced. What if a key member of staff leaves? What if there is a fire or flood in the workspace? There are insurance options for these circumstances. Risk and contingency management is essential to consider when it comes to finance – putting these buffers into place will not only lessen the impact of any unforeseen problems but demonstrate your reliability to people who can offer you financial help.
Not being realistic about growth prospects
When business owners approach lenders because they need financial help to sustain their growth plan, they are generally asked for the last 2-3 years of accounts as well as cash flow and profit forecasts. When considering an application, a lender needs to ask the questions, “Can the business afford to service and repay this loan? What might happen if trading income took a dip for some reason?”. Essentially, your lender needs to assess how realistic your growth estimates are. If you have estimated a spike in growth, you need to show that you have considered any potential obstacles – lenders like to see that you have considered potential setbacks and will therefore be a responsible person to lend to.
Solution: To set reasonable targets for growth, consider implementing SMART goals, aka specific, measurable, accountable, realistic and time-specific goals. Also, if you have the right documentation and you understand it as a monitoring tool, that will also help you to more accurately estimate your growth margins.
