Tax & admin · 8 September 2015

Looking for funding? Make sure you know what you actually need it for

Too many businesses assume they need funding without planning what it will be used for and how much they need
Too many businesses assume they need funding without planning what it will be used for and how much they need

Our Get Funded expert, KPMG’s Bivek Sharma, discusses some of the main issues early businesses have here – including not fully thinking through what purpose the funding they’re so avidly pursuing, will actually have.

As part of KPMG’s Small Business Accounting team, Bivek Sharma helps provide a range of support to those getting their firms up and running.

He feels there are numerous challenges for those in the funding space – fundamentally “where to start” as the first moment of uncertainty. “There are all these considerations for early businesses – the fear of taking on debt, of giving away part of their business. You see the myriad of options available when you start looking and I think a lot of people get a bit confused,” he explained.

As Business Advice’s Get Funded expert, Sharma will be aiming to help you focus on some of the critical questions and ascertain just what type of funding you need and how to go about getting it.

“It has become a bit vogue to think you just need funding as a general desired goal, rather than considering the background to it and what you actually need it for,” Sharma said. “Do you need it for a long-term project a short-term cash injection to meet the day-to-day running of the business required?” he asked.

The initial principles to revisit anytime you’re looking to take on any funding are to match it up to how long you need it and what it will be used for. “It doesn’t make sense to use an overdraft to buy a long-use asset,” Sharma said.

There’s also the necessity of “drilling down into the detail”, when you’ve started establishing what type of funding you’re after. Sharma feels there are plenty of both benefits and disadvantages to the various options out there and many small businesses don’t properly examine what these are before ploughing ahead.

He mentioned the example of the different ways you can access funding through the crowd – “rewards, equity, bonds and business loans are all options”. In upcoming pieces, Sharma intends to unpick what type of choices may or may not work for certain businesses and why that is.

Discussing the increasingly popular phenomenon of equity crowdfunding, he feels that it can be an appealing route for many early firms for a number of reasons – but with its popularity has also come heightened competitiveness between businesses looking to catch attention.

Platforms like Seedrs have become increasingly popular
Platforms like Seedrs have become increasingly popular

“We work with a lot of the online platforms and the amount of applications they get in a day is extraordinary,” Sharma agreed. “It’s appealing because it’s an easy way to validate your idea, so a lot of businesses are going to do it.”

The other benefit it holds is that in order to fully go through the process and then stand out from the crowd, you often need to be arduous in your preparation. “It helps a lot of smaller businesses get a good initial footing because they put together well thought out plans,” he said. A pitfall here though, is thinking it’s a one-size fits all option and not thoroughly checking out what crowdfunding will entail.

Elsewhere, government grants are highly competitive, but they can also be an attractive option to consider – Sharma cited the variety of sector specific grants which can be “a great way to get started if they are available to your business”.

With recent research from Lloyds Bank Insurance indicating that over two-thirds of micro businesses rely on family and friends to keep going, and so many looking towards relatives for that initial injection of funding, where should you begin if you don’t have that option and how do you break away from that reliance?

“It depends on the business, but you should be exploring how to get your product out there and start getting some feedback from the market. Even just a little bit makes it so much easier to then start looking externally for funding,” Sharma advised.

Before you look for funding, extensive preparation is a crucial prerequisite. “You’ll see a lot of small businesses that aren’t on top of the business plan, financial projections or that don’t even know how funding would be used,” he added.

In terms of forecasts, Sharma agreed it can be daunting early on as many owners are “scared of making assumptions about their business, because a lot of it can feel like guesswork but putting a realistic plan in early makes you look a lot more credible”.

However you intend to get funding, “being clear on what you’re going to achieve and what the money will be used for” will save you plenty of confusion and time wasted chasing unsuitable options.

Image: Shutterstock

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ABOUT THE EXPERT

Bivek Sharma has been a partner with KPMG for over ten years, specialising in accounting, tax and software. He started the Small Business Accounting division over two years ago with a goal to transform accounting services for small businesses. The team works with a huge variety of industry sectors and companies including coffee shops, technology companies, manufacturers, pubs, restaurants and retailers.

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