How to fund your growth plan

It’s important to stay dynamic and look out for opportunities to grow. Whether you grow by increasing sales or diversifying your offering, it can help you solidify your business’s future and make sure the venture remains financially viable.

The prospect of expansion may seem daunting – it’s not without risk, after all. But often the potential is all there – it’s just our mindset that needs to catch up.

There’s the question of investment too. Why is growth funding so important?

While growth can happen organically, a cash injection is often what’s needed to really push your business forward and ensure you can follow through on your growth plan.

There are all kinds of things that you may find you need to shell out for to facilitate growth.

Why do I need funding for a growth strategy?

There are a number of key reasons why you’ll need to secure funding to grow.

Premises

Perhaps you’re a bricks-and-mortar business that needs more space, a relocation or an upgrade on your current digs. Or maybe your online outfit is crying out for increased warehouse capacity or office square footage.

Either way, securing new premises can be a costly but necessary part of your business’s growth strategy.

Research and development

To improve your products or services, you must first lay the groundwork. This might include finding out more about your customers and what they want, as well as finding new suppliers, developing new systems and creating new offerings.

That work requires investments of time and money, and it’ll be a little while before the monetary rewards start rolling in.

Assets

Perhaps you need to expand your fleet of vans to make more deliveries, update your technology to become more efficient, or acquire more equipment to increase production.

If you find demand is increasing, that’s a great opportunity for growth. However, it doesn’t mean you’ll be able to magically boost your fulfilment capacity with your current set-up.

Staff

Growth takes manpower and that doesn’t come for free. It’s likely you’ll need to take on new team members to help push your business into its next chapter, but it might be a little while before the revenue catches up and balances their salaries.

Diversification

Noticed a gap in the market that you think your business can fill? Want to diversify your product range or revenue streams?

This is a great way to expand and create a whole new pool of customers. Buying in new stock or carrying out training is going to take some serious cash, so you may need short-term financial support.

What should I consider before making my growth plan?

You’re clearly not shy of hard work if you’ve already got your start-up off the ground. But it’s worth taking into consideration how many extra hours and how much extra effort you’ll need to put in throughout the process of growing your business.

If you have staff who are going to be taking some of the weight on their shoulders, you’ll need their buy-in. So, discuss your plans with them, explain what you hope the process will achieve and listen to their thoughts.

Try to come up with a plan that they’re happy with, so you keep them satisfied. Of course, incentives may be called for here, too; it’s really powerful to tie their rewards to your goals.

When concentrating on expansion, it’s easy to take your eye off the ball and let the quality of your services or products slip. Bear in mind that quality is the very thing that has allowed your business to get to the point where it’s able to grow, so try not to lose sight of the basics.

Also, be realistic about how long the process will take. The growth itself but also securing the money needed to implement it. Your business must be able to survive in the meantime. 

How should I prepare to get business funding?

Just like when you were starting your business and had to pour hours into research, planning and forecasting, seeking finances for growth requires some serious admin effort.

No matter what kind of funding you have in mind, you need to make sure your expectations are realistic and your proposition is solid.

Set a clear goal for your growth

Growth can happen in lots of different ways, so be clear about what your aims are and what result they will have.

Potential lenders and investors will want to see that you’ve done your homework and have a strong plan as to how to spend their money, as well as how it will translate into a more profitable business.

Calculate precisely what you need

Being sure of the exact sum you’re aiming for not only helps you to achieve your goal, but will also make your plan credible to your plan and show investors that you’ve done the maths.

Knowing the amount you need might also help you figure out which funding option is best.

Future-proof your business plan

There’s no point gaining investment to grow your business if there’s a chance it could become redundant within the next five or 10 years.

Do your research to see where your industry is going and make sure the market you’re working in will still be a strong one for years to come. This might give you inspiration for other ways to improve or grow, too.

Of course, no-one can predict the future, but making an educated assessment is key.

Consider what you’re willing to offer in return

If you take out a loan, you’ll likely be paying back a considerable amount more than you borrow, so have a think about what number you’re comfortable with. You may also need to secure the loan on a personal asset, like your home.

If you go down the investment route, you’ll be exchanging cash for shares in your business and giving power to a third party. What proportion of your business are you willing to hand over and with what conditions?

What are my funding options?

There are loads of different sources to consider when looking to fund your growth strategy. Each has their benefits and limitations, and some will be more fitting for your business plans than others.

Bank loan

Perhaps the most traditional way businesses secure cash injections, you might prefer a bank loan if you’re unwilling to relinquish any control of your business.

Banks are cautious, so you’ll need to convince them about your business plan and your ability to make repayments.

They tend to focus on established businesses and may ask for a personal guarantee, which means you would be liable for repayments if your business fails.

Angel investors

An angel investor is someone who invests a considerable chunk of money into your business in return for a proportion of ownership.

Sound familiar? It’s what the dragons on Dragons’ Den do. While you don’t have to go on TV and stand in front of a panel of competitive millionaires, you’ll still need to deliver a solid pitch on your business, detail your plans and negotiate the terms.

Peer-to-peer loan

Peer-to-peer lending happens through specialist websites and involves individual lenders as opposed to larger organisations like banks.

This means you may be accepted for a loan despite having been refused elsewhere. Also, there’s sometimes no minimum loan amount – great if you’re looking to borrow a smaller sum of money than your bank will lend.

You need to have an established trading history and a good credit rating.

Crowdfunding

Crowdfunding involves raising funds from the general public and has really taken off over the last decade.

There are now a large number of hosting platforms available for businesses to set up and manage their campaign on – think GoFundMe, Kickstarter and Crowdfunder, for starters.

There are three main types of crowdfunding:

• Equity-based

• Reward-based

• Donation-based

The first two mean that you give people an incentive to provide funding by offering something in exchange – shares of your business or a reward like a free product.

Meanwhile, the third option relies on people not expecting anything in return for their money – this can work well if you have a solid and loyal customer base who are emotionally invested in your business.

Invoice finance

Waiting for clients to pay invoices can really slow up cash flow. Invoice finance is a flexible way to generate instant funds from these outstanding bills.

It works like this: you pass your invoices to a third party, who lend you an agreed proportion of their value – often within a matter of hours. Then, when the invoice is paid, the full amount goes to your lender, who takes a fee for the service.

You can choose which invoices to borrow against, giving you a good level of control throughout the process.

Claiming tax relief

There are several types of tax breaks you may be eligible for. But one of particular note to companies that invest in innovative work as part of their growth strategy is research and development tax relief (R&D).

HMRC’s definition of R&D is quite broad and a wide array of sectors – not just tech or STEM ones – can benefit.

If you’re spending money on your innovation, you can make an R&D tax relief claim to receive either a cash payment and/or reduced corporation tax.

Government-backed grants and loans

There are many business grants out there that you could be eligible for. Many grant programmes are location-specific or intended for a particular industry or size of business, so check out what’s available to you.

Keep your eye out for business competitions too, offering prizes in the form of money or services to the most promising candidates.

Grants are an increasing part of the early-stage and growth-stage economy. If you’re considering an application, always research the options using comparison sites and make sure you fully understand the award criteria.

The main cost of grant funding is the time spent in the application process, which can take up to six months for the larger awards. With that in mind, it pays to avoid wasting time on grants you’re unlikely to be awarded.

How do I choose the right funding option for my business?

As you can see, there are lots of different avenues to explore when looking for financial investment for your business. Before taking things further, it’s important to thoroughly research each and decide which ones could work for you.

Consider the long-term effects of each finance option too. Think about how you’ll ensure you can make repayments over a long period of time or how you’ll manage new shareholders who have invested – do the maths as to what your investment will cost you in the long run.

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