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Funding a Start-up: The Key Considerations

There is sense among observers that both entrepreneurs and financial market traders have become increasingly thick-skinned since the Great Recession. This means that they are increasingly deterministic in their outlook, and less likely to react rashly during times of economic austerity.

This is reflected in the UK at present, where the ICAEW UK Confidence Monitor (BCM) has reported that business sentiment has increased from -8.7 to 6.7 during the second financial quarter. This is despite the looming spectre of Brexit, which has the potential to damage trade relations and send the cost of imports spiralling indefinitely.

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The Key Considerations When Funding Your Start-up

 With this in mind, it is likely that a growing number of entrepreneurs will be looking to grow their ventures even as the Brexit negotiations get underway. If this is the case, however, there is still a pressing need for business-owners to seek out creative ways of funding their endeavours. For example:

1.The Need to Minimise Longer-term Debt

This is perhaps the most important consideration, as adopting a mind-set that strives to minimise long-term debt will help your business to survive during the most challenging times.

The key here is to prioritise flexible funding options, which allow you to secure working capital without significantly increasingly your firm’s long-term debt liability. Such options include the investment of personal funds (not in the form of a directors’ loan) and factoring, through which you sell your accounts receivable to third party investors and repay your debt as soon as clients have repaid their invoice.

If you do decide to invest personal wealth, you should consider trading the financial markets (and particularly flexible and liquid derivatives like currency). Just be sure to approach the markets with caution, and strive to build a strong knowledge base through the type of learning resource listed here.

2.The Importance of Retaining Equity

As you explore these flexible options, you will begin to understand why the traditional, equity based investment model is no longer as popular as it once was. After all, this requires you to place a competitive and often reduced value on your business and sacrifice equity in order to secure investment.

This can be particularly dangerous for start-up entrepreneurs, who run the risk of diluting their ownership while accruing the type of long-term debt that is hard to sustain. Make no mistake; you should strive to avoid this at all costs, or at least make a concerted effort to minimise the amount of equity that you give away to third-party investors.

3.How Much Money Do You Actually Need?

Before you launch into a commitment, it is prudent to re-evaluate your business plan and ensure that you need the precise amount that you are asking for. It is crucial that you deal in pennies rather than pounds in this respect, as this makes it easier to approach investors confidently and secure a viable but ultimately streamlined amount.

Not only this, but your plans may also change in the time between the cultivation of your business plan and the delivery of funds, so it is crucial that you check the desired amount of capital at various stages of the process.

This may help you to reduce your short and long-term debt burden as an entrepreneur, as even small changes can make a significant difference over time.

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