Growing your business, whether through increased sales or improved profitability, often means you need to invest more. You can do this by:
- investing previous profits back into your business
- taking out a loan
- selling shares to outside investors
- looking for other sources of finance, including government-backed schemes
Professional advisers such as accountants can help you to work out whether it makes financial sense to take on loans or investment. You should take legal advice before taking on new investment in your business.
Taking out a loan
You should make sure that your business will be able to pay back the debt before you take out a loan. Repayments are often made in instalments over a number of years, and you’ll need to pay off any interest on outstanding debts.
If you’re a sole trader looking for a loan, a lender might ask you to provide a personal guarantee or promise to hand over assets like your house or car if you can’t repay the loan.
If you’re thinking of bringing in new investors, they’ll want to know how much your business could increase in value if they buy shares. To work this out, they’ll need to know how much their investment will increase your sales and profitability.
You’ll need to provide potential lenders and investors with a financial model showing:
- how your business will spend the extra money to increase sales and profitability
- how initial costs and increased ongoing costs will affect your cash flow
Increases in sales usually only happen after taking on additional costs like employing more staff, moving to larger premises or putting in bigger orders for raw materials. You’ll need to take all of these into account in your financial planning.