A start-up's guide to funding, cashflow and getting paid on time

Money is of course crucial to any business. Enterprise Nation head of content Dan Martin shares tips for funding your business, managing cashflow and getting paid on time.

Funding

Friends and family

Friends, family (and fools as the saying goes) is one of the most common ways to fund a business, particularly in the early days. They are likely to be much more flexible than formal lenders, but be careful that entering into a financial agreement with a loved one or old acquaintance doesn't damage your relationship. Make sure you both understand the terms of the funding provided and whether it's a gift or a loan. Using crowdfunding (see below) is a way to avoid the embarrassment of having to ask people you know for money in person.

Traditional banks

Despite what the media says banks are still lending money to small businesses so it's worth approaching the high street lenders. Many have targets for funding new companies so they want to hear from good businesses. Go armed with as much information about your company as possible and put together a strong business plan.

Business angels

Business angels, or angels as they're commonly known, are individuals with money to invest in early stage small businesses. They tend to be willing to part with between £10,000 and £500,000 in return for equity in a business and will expect to see a return on their investment within three to eight years. They'll bring with them useful contacts to help grow your business and won't necessarily want day-to-day involvement in the company. The government's SEIS tax break has made it even more attractive for angels to back companies because it makes it's a much less riskier action. The UK Business Angels Association provides information on how to find angel investors and lists networks and accelerators where they hang out.

Venture capitalists

Venture capitalists tend to not invest in very early stage companies and are businesses rather than individuals. They usually invest upwards of £1m and will generally require a seat on the board. They can be much more demanding than business angels and will want to see a much quicker return so VCs are not suitable for most new companies.

Crowdfunding

One of the newest forms of finance for start-ups, online crowdfunding allows you to raise money from the public using internet platforms. Several exist but some of the most popular include Crowdcube and Seedrs, using which you raise money in return for equity in your business, and Indiegogo, Kickstarter and Crowdfunder, using which you accept funding in return for rewards such as products, t-shirts or party invites. Crowdfunding has increasing rapidly over recent years and thousands of businesses have been successful. Thousands more haven't though so take time to carefully craft your pitch so you communicate exactly what you do and what people who fund you will get out of it. It can be a good idea to launch your crowdfunding campaign with some funding already as that will encourage people to get involved.

Peer-to-peer lenders

Peer-to-peer lending has exploded in recent years and is expected to be worth £40bn by the end of 2016. It allows businesses to borrow directly from savers. Use search services such as Alternative Business Funding to find the right alternative lender for you.

Competitions

You shouldn't rely on them as your key source of funding but competitions are a good way to get some extra cash. There are all sorts of awards that offer financial prizes but always ensure you check the terms and conditions. j4bGrants is a useful website to find details of contests and competitions with funding on offer.

Managing cashflow and getting paid on time

Effectively managing your business' finances is crucial to making a success of it so you need to stay continuously focused on cashflow.

Carry out regular cashflow forecasts and monitor what money is coming into your business and what is going out. Accountants recommend you do this for at least three months in advance and accounting software can help.

Start by listing all the bills you owe and then predict all the sales and finances you expect to receive during the period you're forecasting. Be realistic.

Monitor what you spend and keep costs low. Do you really need the funky office furniture? Could you use Skype or Google Hangouts instead of travelling to a meeting?

Not getting paid on time is an enemy to your cashflow but unfortunately it's a problem many businesses face. There are things you can do to prevent it or reduce its impact though.

Do you research before doing business with another company to find out their credit history and financial background. Companies House can help or you could consider paying for a service like Experian or Graydon.

Make your terms of payment clear and ensure the customer understands them before you deliver the work. Invoice immediately after the work or service is completed and make sure all the required information is included so payment isn't delayed for a simple reason such as the wrong purchase order number or contact name.

Provide the customer with various ways to pay including credit and debit cards and don't feel bad about chasing payments. Although you are entitled to impose interest on late payers you may not wish to do it for fear of damaging the relationship but there's no harm in reminding an overdue payer in a polite and courteous way.

This post is the final content in a series to coincide with StartUp 2016, 10 free start-up events that took place across the UK on 16 January. To find out more go here.