• Take time to shop around and compare interest rates carefully, as they can vary significantly. Negotiate with the bank manager to get the best deal and ask for any special terms in writing. .
• Use a finance broker to propose the best deals for the type of finance your business needs. A broker can save you time and increase your chances of getting a loan by presenting your proposal in the best way to the most appropriate lenders.
• Research the small print. Apart from interest rates, assess other lending criteria, such as loan terms and set-up fees. Investigate any special deals there may be for start-ups. Consider having an expert, such as a solicitor, review the loan documents.
• Be well informed about your own finances. Find out about the factors that affect your credit rating and have a clear picture of your business finances. This will help you avoid expensive loans and make sure you get a deal that meets your needs.
• Be prepared to switch providers. You don’t have to stay with the bank that manages your personal account to be considered for a loan. It’s wise to compare loans from at least four providers.
Do you understand how a business loan can impact your credit?
If you’re looking to start or expand a business and need resources, you might consider a small business loan. Small business loans can be used for a variety of business purposes, which may include acquiring real estate, renovations, equipment, and start-up capital.
There are different types of small business loans, and each serves a distinct purpose. Before approving a request for a small business loan, lenders look at basic factors such as the applicant’s collateral, working capital, experience, and their ability to repay. A major factor that plays a role in a small business loan approval is credit.
Many entrepreneurs worry that a small business loan will have a negative impact on their credit score. Fortunately, there are simple ways to protect your personal credit score. They key is making a distinction between yourself and the small business.
If you’re starting a new business, the lender will likely examine your personal credit, in which a small business loan may lower your credit score. On the other hand, if you’re requesting a loan for an existing business, the lender may qualify you based on the business credit. For this reason, it is imperative to assign your business its own identity.
You will need to contact the Tax authorities a separate Tax ID Number for your business. Additionally, choose a separate business name, open a separate bank account, and file your business under a separate address. These steps will help build your business credit, which allows you to obtain credit in your business name.
Do you know how to prepare and/or interpret a balance sheet, income statement, and cash flow statement?
Your balance sheet is a financial statement at a given point in time. It provides a snapshot summary of what your business owns or is owed – assets – and what it owes – liabilities – at a particular date.
The balance sheet therefore shows how your business is being funded and how you are using these funds.
There are three ways you may use your balance sheet:
• For reporting purposes as part of a limited company’s annual accounts
• To help you and other interested parties such as investors, creditors or shareholders to assess the worth of your business at a given moment
• As a tool to help you analyze and improve the management of your business
This guide explains who needs to produce balance sheets and when, the different elements within them and how to use the information from a balance sheet to assess and manage business performance.
Contents of the balance sheet
A balance sheet shows:
• Fixed assets – long-term possessions
• Current assets – short-term possessions
• Current liabilities – what the business owes and must repay in the short term
• Long-term liabilities – including owner’s or shareholders’ capital
The balance sheet is so-called because there is a debit entry and a credit entry for everything (but one entry may be to the profit and loss account), so the total value of the assets is always the same value as the total of the liabilities.
Fixed assets include:
• Tang i bl e assets – e.g. buildings, land, machinery, computers, fixtures and fittings – shown at their depreciated or resale value where appropriate
• In ta n g ib le assets – e.g. goodwill, intellectual property rights (such as patents, trade marks and website domain names) and long-term investments
Are short-term assets whose value can fluctuate from day to day and can include:
• All stock and equipment.
• All work in progress.
• All money owed by customers to your business.
• All cash in hand, or at the bank.
• All short-term investments.
• All pre-payments – e.g. advance rents that have already been paid.
Current liabilities include amounts owing within one tax year:
• All money owed by you, or your business to suppliers.
• All short-term loans, overdrafts, finance, or otherwise.
• All taxes due within the financial year.
Long-term liabilities include:
• All creditors due after one year – the amounts due to be repaid in loans or financing after one year, e. g bank or directors’ loans, finance agreements.
• All capital and reserves – share capital and retained profits, after dividends (if your business is a limited company), or proprietors capital invested in business (if you are an unincorporated business)
The firm’s external accountant will usually decide how to present the information.
Are you sure your planned business fills a specific market need?
A good business idea
A good business idea could be an invention, a new product or service, or an original idea or solution to an everyday problem. It might also be:
• A gap in the market that you can fill.
• A business related to the work you do already.
• An interest or hobby that you can turn into a business.
Whatever your idea is, you need to be sure that it fits with your needs as an individual, as well as being a viable business proposition.
Questions to ask yourself
• What is it that you will personally bring to the business in terms of relevant experience and expertise?
• Is there a market – a need for the idea, and will there be enough customers who will pay for it?
• How big is the market, and how will you plan to reach it?
• Who will be your main competitors?
• What is special about your idea that sets it aside from others, and what makes it different from similar products or services already out there?
• How will you fund your idea?
• What might go wrong?
Do you understand the tax requirements associated with your business?
Because taxation is such a vast, complex, and specialized subject and is continually changing. The best way to find out is to ask your local tax office or tax adviser for the information.