INFO TO HELP YOU START, MANAGE AND GROW YOUR SMALL BUSINESS
Smart moves for business success
START-UP FINANCE
You will need money to start your business. It may be for stock or it may be for assets. How you choose and manage your start-up finance will determine your prosperity. Inform yourself and make smart finance choices to empower your business future.
TYPES OF FINANCE
Personal savings & income: the smartest choice
If you can use savings and income such as a salary to fund your business, you will not owe interest or have a debt to anyone. Your business will be more secure.
Family and friends
Family and friends may have an interest in your personal success and the success of your business, and may be willing to wait longer for repayment. You will need to repay the loan and / or offer support to them when you are successful. Make an agreement on what repayment you can offer and when.
Partners
Partners can increase the amount of money available to start the business with their own money. Partners should also bring skills. Partners should also bring skills and work to the business so agree on the role of partners, the work to be done, the amount of finance and the partners’ shares.
Debt finance
Debt finance is finance from banks and other registered lenders. If you qualify for debt finance and use it, you will have to repay the capital and interest at the interest rate they offer (see the table below to make an informed decision on what you need to earn and repay). DO NOT use debt finance from unregistered lenders.
Download the info sheet with the table, here...
Equity / share finance
There are two types of equity finance. One type may ask for a share in the business without providing skills or management, and will take a share of the profit (A silent partner). The other may ask for repayment from profits but not take a share. Both may want the right to sell the shares shares. Equity finance may be ‘patient’ and accept lower repayments for a while if you face difficulties.
IMPORTANT TO KNOW
Deposit and deposit costs
Many lenders may want a deposit. They may also offer to finance the deposit. This will increase the amount of the loan or reduce the amount which you can draw from the loan. and work to the business so agree on the role of partners, the work to be done, the amount of finance and the partners’ shares.
Hidden costs
There are a number of hidden costs. These include fees for the contract and stamp duties, and fees to register collateral. Make sure you know what they are.
Tax first
If you are registered for tax, you have to pay that first, so calculate how much you can afford after you have paid tax.
COLLATERAL
Most debt and equity lenders will want assets that you offer as collateral. If you do not pay back the loan they will take ownership of the assets that you offer as collateral to cover their losses.
Types of collateral can be fixed assets such as houses and land or personal assets such as vehicles. If you are financing an asset for your business, you may be able to offer the asset as collateral as well.
If you have a contract or a tender you may be able to use contract or tender-based finance and offer income from the contract or tender as collateral.
Other forms of collateral may be investments such as life insurance, or third party guarantees (friends or family offer to repay your debt if you don’t repay).
WAYS TO REDUCE FINANCE
If you borrow less, you repay less and you will make more profit. Use your profit to build up savings or pay your loan faster. Borrowing less is the smart move, so reduce your need for finance when you start your business.
Buy second hand or less expensive assets. It is tempting to have the latest and best assets, but if the repayments are too high, your business will suffer.
Reduce your stock levels. Buy only enough to begin with. When you have made a profit, you can buy more.
Try to run your business on your own or with the help of family or partners. Finance to pay staff will not help you if you spend all your profit to repay the loan.
Keep your costs low. Economize on rent by working from home and try to save on water and electricity.
YOUR FINANCE IS NOT YOUR SALARY
Many new businesses fail because their owners use debt or equity finance to pay their own salaries before they make a profit. This either increases the loan size or reduces the amount available to buy assets and stock. DON’T use finance to buy luxuries.