Business

Funding for growing businesses – Obtaining and managing private investment

Accountants Essex Blog, Blogs, Business, Finance, Funding, Government Funding, Investment, SMEs, SMEs / Business
Funding for growing businesses – Obtaining and managing private investment

Funding for businesses can come in a range of forms depending on your needs, creditworthiness and projected ability to make repayments.

While many business owners choose to take out commercial business loans to meet their funding needs and growth goals, this is not the only option, particularly if you think that repayments with interest could hinder future progress.

In this case, your attention might turn to private investment.

If you choose to go down this route, it’s important to understand what expectations you may have to meet and the types of funding you may encounter.

The ins and outs of private investment

Investment is generally one of three financing options for SMEs, along with loans and grants.

In a similar way to receiving a grant, you won’t necessarily be expected to repay the investment amount like a loan. It is the investor’s choice to support your business financially and they assume the risk when they come on board.

Instead, you’ll typically agree to give your investor a proportion of your profits for a certain period of time.

This means that, if your business excels, your investor will make a good return on their investment but will make a loss if something doesn’t go according to plan.

Types of investment

Types of investment your business might attract include:

  • Angel investing: Investors provide capital for a business start-up, usually in exchange for a portion of the business profits or partial ownership. Angel investors often contribute not just capital but also advice and business connections.
  • Venture capital: Venture capital firms offer significant amounts of capital to start-ups and high-growth companies with the potential for high returns. In exchange, they usually require equity and significant influence on company decisions.
  • Private equity: Private equity investors provide capital for businesses looking to expand, restructure, or transition ownership. Investments are often in larger, established companies compared to venture capital. This investment is in exchange for shares in the company.
  • Crowdfunding: Through online platforms, businesses can raise small amounts of capital from a large number of individuals. This method offers the advantage of not having to give up equity or repay the investment directly, though some platforms enable equity crowdfunding.
  • Peer-to-peer lending: Businesses can receive loans directly from individuals without the involvement of a traditional financial institution. This can be faster and more flexible than traditional loans, but interest rates can vary widely.

Preparing to seek out investment

If you decide to go down the investment route, you will likely be expected to demonstrate certain things about your business before an investor is prepared to work with you.

A solid financial plan is usually the most important element in the early stage of investment.

You’ll need to be able to show investors that your business can realistically make a profit and provide some form of return on investment.

Without this, there is little incentive to financially support your business.

To do this, you will need to show:

  • Financial projections
  • An awareness of your market
  • Evidence of good financial management
  • A business strategy
  • Ambitious but realistic growth goals

You should also ensure that your business is truly ready for growth and can meet an increased demand for your product or service. Without this, growth is likely to fail or stagnate.

Managing investment funds

Once an investor has provided funding to your business, you need to be able to properly allocate and manage these funds.

Some investors will give you free rein to use the money as you see fit in order to grow your business according to your plan, but many will ask that you demonstrate how you have used their funding and may even want some say in how it is applied.

Whichever approach your investors take, you should be prepared to keep and show solid financial records to demonstrate that you are using investment funds appropriately.

You should also ensure that you review any legal agreements made with your investors and meet any requirements detailed there, such as providing regular financial updates.

Ultimately, seeking financial advice is the best way to know that your business is ready to grow through investment and that you can meet the necessary expectations.

To learn more about attracting and managing investment, contact a member of our team today.

Short-term let owners to face new planning permission requirements

Accountants Essex Blog, Blogs, Business, Business Advice, Business News, Property, Property News
Short-term let owners to face new planning permission requirements

For owners of an Airbnb or other short-term let properties, new planning legislation is set to come in by Summer 2024, which could lead to new fees and penalties for non-compliance.

In a bid to tackle housing shortages in areas of high demand for short-term lets, the Government is introducing new regulations, which will require a special category of planning permission for property owners.

What are the new requirements for short-term lets?

The Government will require owners of new short-term lets in England to secure planning permission with their local authority to use their property in this way.

A new use class will be introduced to planning permission regulations to avoid confusion with existing classes. Existing lets will automatically be reclassified and will not require planning permission.

New regulations will also introduce a mandatory national register to record all short-term lets in England.

The Government has floated the potential for annual registration, plus a registration fee, although nothing has yet been confirmed.

Why are these changes being introduced to short-term lets?

Put simply, demand is growing.

The average Airbnb host in the UK earns around £6,000 annually.

The market for short-term lets has boomed in recent years, with more people deciding to enter the field on a casual basis – renting out their own home or buying a single rental unit.

As with any industry that has a lot of players, high demand and rapidly evolving trends, regulation has struggled to keep up with the short-term rental market.

In particular, critics have highlighted the difficulty of managing the quality and number of lets in areas where the need for family housing is high.

As a result, service providers such as Airbnb, and Government bodies, have been subject to criticism by consumers for failing to maintain proper licencing and security.

The aim is to provide local authorities and councils with more control over the number of short-term let licences issued.

What will new short-term let regulations mean for you?

It will depend on which property you let and how often you do so.

The rules will apply to owners of new lets and will not be retrospective – meaning they will not apply to properties that you already rent out.

This might mean that you need to put off or reconsider the purchase of a new let, but this will depend on your individual situation.

New planning regulations will also not apply to homeowners letting out their sole or main home for up to 90 nights per year.

The cost of planning permission has not yet been clarified, but current ‘change of use’ charges range from £120 to £258, with the majority set at £120.

The mandatory register could also have some unforeseen consequences for business owners.

Reporting has suggested that HM Revenue & Customs (HMRC) could have access to the register, which stresses the importance of tax compliance for anyone operating a short-term let in England.

How can we help?

Planning will be essential to maintain compliance with new regulations and ensure that your business has the funds and other resources to meet these requirements.

We can help you to plan around the additional costs of obtaining planning permission and any ongoing compliance costs.

If you operate your short-term lets as your main business or you wish to grow a side business, we can also advise you on working these compliance measures into your business plan.

Don’t fall behind on compliance. For tailored support, please get in touch with our team today.


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