Raising finance for the business

Most businesses need to raise money at some point. The majority of smaller businesses will borrow from a bank to help fund initial costs of premises, stock, etc. More mature businesses may find opportunities that require the injection of new funds or, very often, simply need an ongoing source of finance to bridge the time gap between the incurring of costs and the gaining of revenue. Struggling businesses may seek extra cash to tide them over a difficult period of trading and to avoid (or, in some cases, merely postpone) the need to wind the operation up.

As in other fields, the tax tail should not wag the commercial dog. The fundamental choice is between loan finance on the one hand and shared ownership of the business on the other.

If loan finance is the choice, the next stage is to consider whether an overdraft facility is appropriate or whether a more formal loan is required (or, probably, some combination of the two).

If shared ownership is chosen, there will be all-important considerations as to the extent to which ownership and control of the business should be given up and the extent to which the other owners will be involved in running the business. Practical considerations will include shareholder agreements covering issues such as pre-emption rights in respect of the sale of shares in the company.

The tax implications will be completely different depending on which choices are made.

There are practical issues with finding shareholder investors in private companies. Aside from friends and family, local networks of contacts and various organisations may be able to suggest investors looking to make a business angel or venture capital type investment. More mature companies are likely to attract private equity investment.

There may be government-supported funding available for your business depending on your location, your size and your industry. A search for relevant schemes can be found at www.gov.uk/business-finance-support.

We can help with all of your business and personal tax and financial planning needs. For a strategic review of your finances, please contact us.

Disclaimer: We don’t take any responsibility for actions taken based on above information. Please speak to our consultants if you need more information. This guide was written specifically for Smart Accounting clients. Some of the information contained in this guide might not be applicable if you do not have a business managed by Smart Accounting. By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details are correct at time of writing.