Running an Ethical Business

Running an ethical business takes a huge amount of passion and commitment in order to incorporate environmental principles throughout the whole business, let alone dealing with the usual day-to-day pressures. And, if you don’t have the basics in place to help fund your business, no matter how great or how ethical your business idea is, things might crumble.

Running an ethical business takes a huge amount of passion and commitment in order to incorporate environmental principles throughout the whole business, let alone dealing with the usual day-to-day pressures. And, if you don’t have the basics in place to help fund your business, no matter how great or how ethical your business idea is, things might crumble.

Accessing money to fund expansion is critical to a company’s long term success. Many people have traditionally relied on personal savings to fund growth. Last year, research discovered that almost a third (29%) of entrepreneurs were willing to risk borrowing from their joint savings accounts, to keep their business afloat, rather than securing adequate long-term provisions. As this is far from ideal, it is definitely worth exploring alternative finance options and there is a form of funding to suit everyone.

More often than not, banks are the first point of call for most entrepreneurs. They provide quick and easy funding, require no equity and an existing relationship is usually in place via personal banking. However, the best deals can involve staking personal and business assets as security, a risky strategy and a short-term solution. Also, repayment amounts are affected by the fluctuating interest rates and with the current financial climate resulting in increasingly stringent and less flexible lending criteria, SMEs are currently looking for other options.

Some ethical businesses rely on venture capital to access funding. Venture Capital usually comes from a group of wealthy investors, investment banks and other financial institutions. It is popular among new companies, with limited operating history that cannot raise funds easily. Venture capitalists have a vested interest in a business and can also include managerial and technical expertise to benefit you. The downside is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity and you may be less than happy to give part of your company to someone who doesn’t necessarily have the same ethical principles as you.

Another avenue worth investigating is working with a Business Angel, a wealthy individual who acts alone or as part of a networking group. These have recently come to the fore in the form of programmes such as Dragons’ Den, where entrepreneurs with a proven track record in running their own business have put their name, reputation and money behind a company they have a genuine interest in. Finding the right like-minded business angel can be time consuming to arrange but worth it if planned properly.
 Many SMEs choose invoice finance to fund growth. In its simplest terms, invoice finance enables a business to release cash tied up in its unpaid invoices. Every time a business raises an invoice, the invoice financier releases up to 85 per cent of the value of that sales invoice into cash within 24 hours of it being raised. The remaining 15 per cent, less a small service fee, is paid to the business once payment from the customer has been received. The benefits of an invoice finance facility are that it not only provides an immediate cash injection into the business but also access to an on-going source of funds that is linked directly to current sales. It can improve profitability as the business can pay suppliers early, buy in larger quantities and take advantage of any volume discounts that are available.
Also invoice financiers, take a 360° view of your business when reviewing the funding they can provide. This allows them to offer a more flexible approach, considering the merits of each unique business. Using invoice finance also means that there is no loss in equity, so you remain in full control of your business. As with other forms of funding, it does however require you to have a robust business case and strong financial planning in place before contracts are signed.

Invoice finance has become increasingly more sophisticated in recent years and organisations like Bibby Financial Services have developed products and bespoke solutions for particular sectors and business situations such as Fast Track, its specialist financial start-up package for new businesses. Rather than offering a ‘one size fits all’ solution like banks, invoice financiers have invested in market experts and tasked them with developing a product that meets the particular nuances of the individual industries concerned.

However, even if you do have funding in place to grow your business, if you haven’t got the fundamental building blocks in place, you may still struggle to manage cash flow. Simple things such as credit checking your clients and making sure you only trade with companies that are creditworthy and have a good track record of paying their bills is vital. It is also important to issue invoices as soon as a job is completed and follow them up with a phone call to check if they’ve been received and that all details are correct.

In short, investigating all the options carefully to ensure you have the right funding for your business can make the difference between boom and bust. Thankfully, a number of specialist options are widely available today and are helping many businesses to grow and thrive, allowing you to do what you do best: driving your business forward.

For more information on how to fund growth in your business contact Bibby Financial Services on Tel: 0800 91 95 92 or visit: www.bibbyfinancialservices.com

David Robertson, chief executive, Bibby Financial Services