Fund Opportunities

Identified an opportunity but need money to act on it? Funding can sometimes help a business buy stock, increase capacity, take on new customers or support growth. The first question is not simply “where can I borrow money?” It is whether the opportunity is strong enough to justify committing your own money or taking on finance. The right approach depends on what the money is needed for, how quickly it is required, how long the opportunity may last and the financial position of the business.

Start With The Opportunity, Not The Finance

Before looking for funding, work out what the money would actually enable you to do. For example:

Buy stock to meet identified demand
Purchase equipment or machinery
Increase production or operating capacity
Recruit additional people
Fund wages or other costs while waiting for customers to pay
Launch a new product or service
Expand into another location or market

Try to put numbers around the opportunity. How much money is required? How quickly could you act? What additional sales might it generate? What margin could those sales produce? How long would it take for the money to come back into the business? Those questions help determine whether external finance is appropriate at all.

Ways To Fund An Opportunity

There is no single best way to fund business growth. Possible approaches include:

Existing business cash or retained profits – avoiding borrowing costs, but reducing the cash reserves available for other purposes.
Supplier terms – negotiating longer payment terms or other arrangements with suppliers can sometimes reduce the amount of additional funding required.
Customer payments – deposits, staged payments or payment in advance may be possible for some products and services.
Invoice finance – potentially releasing cash tied up in unpaid business-to-business customer invoices.
Business borrowing – loans and other forms of borrowing may provide funding for appropriate opportunities.
Asset finance – potentially relevant where the opportunity requires equipment, machinery or other business assets.
Investment – raising capital from investors may be appropriate for some businesses and larger growth plans.
Grants and government support – some businesses, projects, sectors and locations may qualify for schemes that do not involve conventional commercial borrowing.

Different methods have different costs, commitments and risks. The cheapest-looking option is not necessarily the most appropriate, particularly if its repayment structure does not match the way the opportunity generates cash.

Match The Funding To The Opportunity

Think about the expected life of the opportunity. A short-lived product shortage may disappear before a long-term funding arrangement has served its purpose. An investment in machinery that will generate additional output for several years is a very different proposition. Consider:

How quickly the money is needed
How long the opportunity is expected to last
When the additional sales should generate cash
Whether repayments are affordable if sales are lower than expected
The total cost of the finance
Any security or personal guarantees required
What happens if the opportunity disappears

Try the downside calculation as well as the optimistic one. If demand falls faster than expected, would the business still be able to meet its commitments?

Funding Stock Purchases

Product opportunities can create a particular funding problem because money may have to leave the business well before the resulting stock is sold. The amount tied up can increase further if suppliers require deposits or payment before dispatch, goods have long delivery times or stock is being imported. Before funding a large stock purchase, calculate the full amount of cash that could be tied up and consider what would happen if the stock sold more slowly or at a lower price than expected. Where possible, testing demand with a smaller quantity can provide useful evidence before committing significantly more money. See Sell Products for more about assessing a product opportunity before committing to stock.

Funding Growth Through Unpaid Invoices

A business can be profitable and growing while still being short of cash. If your business sells to other businesses on credit terms, growth can increase the amount of money tied up in unpaid customer invoices. You may have already paid suppliers, employees and other costs while waiting 30, 60 or more days for customers to pay. Invoice finance is designed specifically around this problem. Depending on the arrangement, funding can be made available against eligible outstanding invoices rather than waiting for customers to pay in the normal course of business. Free Marketing Ideas is associated with FundInvoice, a UK invoice finance brokerage. Rather than duplicating the detailed invoice finance information available there, you can use FundInvoice to understand how invoice finance works and explore the options available to your business. Learn about invoice finance at FundInvoice

Check For Grants And Government Support

Before assuming that commercial finance is the only option, check whether relevant business support is available. Government-backed support can vary by location, sector, business size and the type of project being undertaken. Schemes can also open, change and close, so it is better to search current official information than rely on an old list of grants. Business.gov.uk provides a searchable service for business support and funding opportunities. Find business support and funding – Business.gov.uk Businesses in Scotland, Wales and Northern Ireland should also check the business support services available in their respective nations.

Do You Need Funding At All?

Finance is not always necessary, even when an opportunity initially appears to require money. Consider whether you could:

Test the opportunity on a smaller scale
Secure customer orders before committing significant expenditure
Ask for deposits or staged payments where appropriate
Negotiate better payment terms with suppliers
Hire or lease something rather than buying it
Use existing capacity before expanding it
Grow progressively using cash generated by early sales

Reducing the amount required can sometimes be as valuable as finding additional finance.

Stress-Test The Decision

Demand Hunt is designed to identify evidence of demand, not to guarantee the commercial outcome of acting on it. Before borrowing money to pursue an opportunity, ask what happens if your assumptions are wrong. What if:

Demand falls?
A shortage ends suddenly?
A competitor enters the market?
Your selling price falls?
Stock arrives late?
Customers take longer to pay?
The project costs more than expected?

An opportunity that only works if everything goes perfectly may look considerably less attractive once finance costs and downside risks are included.

Looking For Opportunities To Fund?

Demand Hunt monitors emerging UK demand, shortages and other signals that may point towards commercial opportunities. See Demand Hunt Live for the current signals we are tracking. You can also return to Opportunities to explore the different ways you might respond to identified demand.

Important: This page provides general information only and is not financial advice. Identifying demand does not mean that an opportunity will be profitable. The availability and suitability of business finance will depend on individual circumstances. Consider the costs, terms and risks before entering into any finance agreement.