Featured Question – Business Formation
I have a business idea but don't have the time or resources to work on it. How can I sell it to a company I know does?
Do I need to have an equal amount of equity, grant finance and bank finance when starting my business?
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Do I need to have an equal amount of equity, grant finance and bank finance when starting my business?
No. Most businesses don’t qualify for much grant finance so the majority of funding comes from you (equity) and the bank (debt). There are no set rules for the proportions of debt and equity as it depends on the industry and riskiness of the business. However, here are some tips:
- You are the entrepreneur and therefore the risk taker so you should be putting as much on the line as possible. Remember are you the pig or the chicken contributing to the breakfast – the pig is committed, the chicken is involved.
- The bank will want to see you taking a substantial risk share – that’s your job. They are only there to give you some cashflow until you get sales in.
- If possible you should look to put in enough equity to cover the start-up costs (R&D, marketing, launch, and so on) – using bank finance to cover working capital (stock and net of debtors/creditors) and assets used in the business to generate sales – but this will depend on the numbers involved.
Answered by
John Crawley FCCA
