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Raising Money

While “entrepreneur” may occasionally be a euphemism for “out of work”, there are more and more individuals working in earnest to start a business of their own. Indeed, statistics show no fewer than 400 million such individuals globally, with over 2 million in the UK and 20 million in the US.

Sadly, many of these ventures will never get off the ground at all. Of those that do, the majority will fail. Of those who submit business plans to venture capital investors, less than one percent will get the funding they seek.

Those elite few who do raise finance have to give away large portions of their company and control in return. Worse still, many business founders who do receive venture capital money get fired within a year of the investment.

Despite the challenge of raising money, and the serious potential downsides, there is a widespread notion that if you are an entrepreneur looking to build a successful, growing business, you need to write a business plan and raise a few million pounds. But this vision is essentially wrong.
Despite the challenge of raising money, and the serious potential downsides, there is a widespread notion that if you are an entrepreneur looking to build a high potential business, you need to write a business plan and raise a few million pounds. But this vision is essentially wrong. Because, if you are smart you can get your customers to fund your business.

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When it comes to selling a business, the most important question you need to ask is – how much is it worth?

There is no single formula that can be used to precisely value every private business. The seller will want to drive the price up, and potential buyers will want the opposite.

Although there are relatively easy ways to value certain parts of the business – such as stock, fixed assets (land, machinery, equipment etc.), there will very probably be a sizeable intangible element to the value of a business.
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So you want to sell your business? The place where you’ve spent more time than with your family; invested money which you’ve sometimes had to borrow in order to expand or buy new equipment; given your heart and torn out your guts; worked anywhere from 60 – 80 hours a week, maybe more; tackled a recession and seen a chink of light at the other end.

Now think of decorating a room. Any professional will tell you it’s 80% preparation and 20% finish. I wouldn’t go quite that far, but the planning is all important when it comes to selling. Continue…

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Angel investors can be a lifesaver for a small enterprise – not only can they supply capital investment, but they often have years of valuable experience to offer a fledgling business.

As viewers of Dragons’ Den will know, securing angel investment is no easy task. Although much of the BBC show is put on for our entertainment, many of the business owners who appear on the show make the same fundamental mistakes.

Here are five things you must consider if you are seeking investment from a business angel;
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Although it may not reflect ‘real life’, the BBC’s Dragons’ Den programme has done a good job in highlighting the role that angel investors play in the business world.

It may seem counter-intuitive, but the ongoing economic downturn has actually resulted in an increase in business angel activity. As the returns from more traditional means of investing dwindles, some investors are more prepared to invest in riskier propositions rather than watching their capital increase by 2% per annum elsewhere.

Business angels work alone, or as a pack (via an angel network or ‘syndicate’), and usually look to invest in high-growth markets.

Unsurprisingly, you will need to be armed with a well-written realistic business plan to impress a potential investor. There are no firm rules for how angel transactions take place, suffice to say that things can progress far more rapidly by doing business with an angel investor than a less fluid type of investor.

With this in mind, we look at some of the main questions most small business owners have about dealing with business angels:

How do business angels operate?

Angels are typically wealthy individuals who may have up to £500-750k to invest. They often look for opportunities in industries and markets they are familiar with. This makes a lot of sense, and may benefit you due to the experience they can offer.

Potential investors will want to know all the background behind the business, the people involved, and the expertise of the current management team. Above all, they will need to be confident that their investment is in safe hands.

Your business plan, and initial discussions will show the investor what the USP of the business is, and what gives it an edge in the marketplace. They’ll want to examine your track record, and what your growth targets are.

They will expect you to have taken a risk in starting the business, and will not expect their capital to be used to pay your wages.

You should be able to provide a business angel with an exit strategy, whether it be over one, three, five years or more.

Why does the angel want to invest in your business?

Just as an investor will want to find out as much as he can about you, it is essential that you understand the angel’s motivations. Do they see your business as a vehicle to make a ‘fast buck’, or do they genuinely find your proposition interesting and something they could add value to over time?

What can the investor provide to your business?

As we have already mentioned, an investor can often provide even more valuable assets to your business aside from a capital investment. Angels are often very successful business people in their own right – they may have created and sold their own companies in the past, and may even expect to be involved in more than a financial way. If the ambitions of the angel and you are similar, you could be on to a winning formula!

How much involvement can the angel provide?

As the Dragons’ Den programme shows, despite their best intentions, there are limits on the amount of time angels can provide to their chosen ventures.

From the start, you should have a clear agreement on the amount of time your investors will dedicate to your business. For all the benefits an angel can provide, you need to maintain a healthy balance to ensure the boundary between ‘help’ and ‘interference’ is never crossed.

The exit strategy

When making an initial investment in a new project, business angels will already be planning their exit. This is something you should also focus on as a business owner – it may well be that you sell the entire business x years down the line, reaping rewards for both you and your benefactor.

Further Information

The UK Business Angels Association (which superceded the BBAA in 2012) has a lot of useful information, including an investors’ directory. Find out more here.

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The Government launched the EFG scheme to encourage lenders to provide further funding to smaller businesses following the credit crisis. In this article, we look at the how the scheme operates in practice, and how small firms can benefit.
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Many businesses will need to raise funds at some time – either at the start-up stage, or to finance expansion. With ‘traditional’ credit still in short supply and the possibility of a ‘triple dip recession’ in 2013, here is an overview of the various options open to small businesses looking to raise funds.
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Raising business finance is difficult at the best of times but in today’s age of austerity banks, business angels and governments are tightening their belts, cutting off the supply of cash which is leaving start-ups and growing businesses who need seed finance thirsty for money. As a result venture capital is being democratised.

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When you are starting a new business you have a million and one things to think about. As a new business owner, many of the issues you will need to tackle, will be completely unfamiliar to you.

With so much to do, you will need to learn quickly. If the financial side of the business isn’t your strong point, here are 10 tips from ByteStart to help you stay on top of your business finance.
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To raise money to grow your business, you have to convince likely lenders that your idea is profitable, or at least has the potential to be.

This guide explores the main types of finance available, and highlights what investors and lenders look for in a business before they lend it money.
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If you’ve ever watched an episode of Dragons’ Den – and find me anyone in business who hasn’t watched at least one episode – you’ve seen some venture capitalists in action.
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Borrowing money from a bank to finance your business is a lot harder than getting a loan to buy a new car or to improve your home.

Banks have a number of tough rules that you need to know before you approach them for a business loan, and these rules have become even more stringent as a result of the credit crunch.
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At ByteStart, we have come across hundreds of would-be entrepreneurs over the past decade. We have also had the pleasure of meeting plenty of angel investors and industry insiders.

If you have a fledgling business, or an idea that you think you can turn in to a viable business, you might want a business angel to help fund it. But before you charge ahead, here are 9 tips on what you need to do to impress potential investors.
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Launched in 1995, shortly after the introduction of the Enterprise Investment Scheme (EIS), Venture Capital Trusts allow individuals to invest in a range of small unquoted companies and spread their risk. Income tax and capital gains tax (CGT) reliefs are available to investors in VCTs.
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Created in 1994, the Enterprise Investment Scheme (EIS) provides investors with a series of attractive reliefs in return for investing in unquoted companies which may carry a higher degree of risk. How do companies and potential investors qualify to take part in the Scheme?
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Stock market quoted companies are valued according to widely accepted formulas, however there are no ‘standard’ ways to value small or micro businesses. This can cause real difficulties when it comes to buying and selling a small business, as the buyer and seller often have very different opinions on what the business is worth.

With this in mind, we look at some of the valuation issues that may arise if you are planning to sell your business, and how you can overcome them.
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Most small businesses will, at some stage, seek funding or investment – for growth, starting up, or to see them through a transitional period (or a downturn). In this article, we look at the main sources of funding that are available.
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Many small businesses use credit cards to manage expenses. With such a vast array of offerings in the marketplace, what should you look out for when choosing a business credit card supplier?
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Funding is essential for growth, but how do you ensure that you can secure it? Here Kim Farrell, Corporate Finance Partner at Essex-based chartered accountants CBHC LLP, offers some helpful advice.
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The availability of bank loans for businesses is a hot topic at all stages of the economic cycle. During downturns, lending can become tightened, while boom times see some businesses take on huge debts in their quest for rapid growth.
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