Running your own small business presents a range of challenges when it comes to making it a success – finance being one of the most difficult to navigate. Many small business owners won’t have the capital to keep investing in and growing their businesses to reach their goals, which is where a small business loan can help. This type of finance, along with a range of other options are available to small business owners to help give them the boost they need to sustain their business and make it a success. Read on as we take a look at 5 top tips for financing your small business.
Create a business plan
As a small business, you should have a business plan to help you navigate your path to success. A business plan allows you to outline your goals and strategies that you’re going to implement to achieve them. Creating a business plan when launching a new business is crucial so you have a path to follow, to guide you when you need to make important decisions.
As well as this, a business plan can also help you when applying for various types of finance. If you need funds to get your business off the ground, your lender will likely ask to see your business plan to get an idea of how you’re going to allocate the money and to ensure you’re going to be able to make the repayments. As your business grows, you can make changes to your plan inline with your successes and your changing goals.
2. Explore your options
When financing your business, you must look at all the options available to you. For example, there are traditional bank loans (which may be harder for small businesses to be approved for), small business loans from the government and alternative lenders, crowdfunding opportunities, grants, and angel investors – so knowing the difference between each and choosing a funding option to suit your requirements is the best place to start. Make sure you think about how much you need, and how much you can realistically afford to pay off to choose the best loan for you.
3. Monitor your cash flow
The money that comes into your business – your cash flow – is what keeps your business running and helps to maintain your successes, which is why it’s so important that you monitor your cash flow to ensure your business can thrive. To do this, make sure that you’re chasing up outstanding payments when necessary, and sending invoices to ensure timely payment. You should also make sure you’re sticking to a budget and cutting any unnecessary expenses. Saving where you can is also a great way for businesses to build up a cash reserve in case of a dip in revenue or an emergency expense.
4. Check your credit score
If you’ve been running your business for a few years, you’ll have developed a business credit score. Much like a personal credit score, it’s based on your payment history as a business, how much credit you’ve utilised, the length of your credit history and the size of your business and the industry you’re in.
To keep your credit score healthy, ensure that you’re paying any outstanding bills on time, as well as keeping your credit utilization low. It may be difficult to secure a traditional bank loan as a new business as you may not have had time to build a strong credit score, and this is the main tool that lenders use to determine whether you’re a trustworthy borrower, but other options are available.
5. Seek advice
Getting professional help to assist you when it comes to choosing the best way of financing your small business is advantageous, and means you can take advantage of high-quality advice to help you reach your goals. You could ask financial advisors, business mentors, or accountants to help talk you through your finance options for the future.