Small business finance: expectations vs. reality

When starting your own business, it’s important to have your expectations in the right place so that you are prepared for whatever your venture throws at you. If you are running things on your own, you’ll learn a lot as you start trading, but it’s best to be as prepared as possible. 

Here we share five common small business finance expectations and the reality you might find once you start running the company:

1. Getting a business investment is not easy
2. The business loan application process is long and difficult
3. Online lenders are bad
4. You’ll make a lot of money as an entrepreneur
5. You’ll always be paid on time

The reality is that there are many options for business financing, not just the lump sum Dragon’s Den style investment we see on TV. There are lots of traditional funding methods that your small business can explore. While the process of attaining them might not be ‘easy’, there are a variety of applications and options available that are simple and allow you to scale your business’ growth accordingly. Let’s look at some traditional funding options:

You can still reach out to investors or venture capitalists for funding, but as a small business or sole trader, you may be more unlikely to be successful because of the risk associated. If your business is set up as a limited company, you may have more chances of securing investment as it will be protected by limited liability, which reduces the risk for the investor. You can read about how to prepare a business plan for an investor here if this is how you plan on proceeding.

Bootstrapping is the method of funding your business with funds you already have – not looking for an outside source to provide a cash injection. So, instead of finding funding for certain projects, you simply wait until you have saved enough to pay for it. Many business owners will do this for as long as they can, as it allows you to grow the business without taking on projects that are too big or difficult to manage due to your size or resources. This means you have a bit more control over finances and decisions, and can scale your business accordingly with how much money you’re making, and how much resource and time you have.

Most firms, whether large or small, will have a cash injection at some point and a very common way of doing this is through a business loan that you repay over time. There are many types of loans, so do your research before applying to find out which would be the best for your business needs. We have a guide on business loans which you can check out here.

Small business grants are also a funding option, but unlike a loan, you do not have to pay them back. This means the application process is a little tougher and more competitive, but you can find out more about what might be available from local governments here in this article.

Applying for a business loan will always include an application form, regardless of who you borrow from. However, the reality is the process is much quicker than it was in the past because of the number of lenders available. Many lenders are solely digital and now use technology to speed up the application and approval process for small businesses. They know that small firms can’t afford to wait months for approval and funding to come in.

Banks are usually the exception and this process sometimes can be lengthy because of the level of detail they will ask for in the application. They might also want a comprehensive business plan, so they can assess the level of risk they are taking on.

The idea of online lenders charging extortionate rates with lots of hidden costs in the small print is changing. If you look at comparison sites for your business loan, you’ll notice that the interest rates are very competitive. In fact, they are similar to the bigger brick-and-mortar banks who offer the same loans, so don’t count online lenders out before you start.

Although a lot of people may start their own business to make money, there is a big difference between making a lot of money personally and your business becoming profitable. 

When starting your business, you should be making decisions that benefit the growth of the company. Many entrepreneurs go without paying themselves until they are able to do so comfortably. So don’t think being your own boss will pay you back straight away; building a profitable business and learning financial acumen can take time.

In an ideal world, your customers would always pay you on time, but this isn’t always the reality. 

Chasing up invoices is never fun and 77% of small businesses are worried that chasing unpaid bills will damage their relationship with the customer. 

Legally, an invoice must be paid within 30 days in the UK and you can ensure that most of yours are paid on time and followed up properly by setting out a clear credit control process. Without it, you could lose out on money you’re owed for your hard work.

By setting up a Countingup business current account, you can manage all your financial data in one place. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. You can view real-time insights into your business’ finances, profit and loss statements and tax estimates, and you’ll be able to create and send invoices in seconds.

Save yourself hours on accounting admin, and get back to focussing on growing your small business. Find out more here.