Small business finance

The million-dollar question for every aspiring businessperson is nearly always, “Where do I find the money to get my great idea off the ground?”

It can be easy for first-timers to underestimate how much finance is needed and for how long. Often, people are overly optimistic about how soon profit will start flowing back into the business, or underestimate the long-term cost and effects of overheads such as insurance, depreciations and equipment maintenance.

Finance checklist for start-up businesses

Don’t worry; it’s totally normal to be a little too optimistic when it comes to costs, especially if you have no previous experience running a business. When doing your figures and forecasts, it pays to be cautious and extremely thorough. Don’t forget to consider both up front and ongoing costs. Other things to keep in mind:

  • Equipment: Get prices for both new and second hand. You may be surprised by how much you’ll save by buying pre-loved desks and/or machinery. Remember to factor in extended warranties, maintenance and repairs.
  • Location: Rented office/workroom space if required.
  • Phone and Internet: Shop around for “bundle” deals. Comparison websites make this process a lot easier.
  • Materials and Packaging: The cost of sourcing, delivery and storage. Ask for terms that give you a bit of breathing space with cash flow.
  • Insurance: Again, shop around for good deals and thoroughly research your options until you find something that suits your business.
  • Branding: Logo, business cards and stationery if required.
  • Offline Advertising: Promotional material, such as brochures or flyers, may require the services of a photographer or graphic artist.
  • Online: A good website is a necessity for businesses these days and the services of a web developer may be required.
  • Staff: Wages, superannuation and uniforms (if required).
  • Transport: Distribution and travel.
  • GST and Tax: The IRD website has a great online Tool for Business that can help get all your small business tax issues sorted.
  • Professional Fees: Accountant, solicitor, web designer/developer and any other professional you have engaged.
  • Delayed payments: You may have to pay your suppliers before your customers pay you. This has the potential to cause a cash flow crisis that could stop your business in its tracks if there isn’t sufficient money in the kitty to keep things going. Read the guide to cash flow and how important it is to manage it correctly in a small business on the New Zealand Government’s website Starting Up A Business.
  • Personal Finance: Make sure you have the funds to keep you and your household going until the business is booming.

Include finance information in your business plan

Before you visit your accountant or whisk your wealthy aunt off to your favourite wine bar, we highly recommend writing a business plan (an essential document that you’ll need when it comes to financial planning). Typically, a business plan should include detailed costs, pricing structures, margins and projected profits.

This important document is the first thing a commercial lender or any savvy lender asks for, so make yours as professional and business-like as possible.

And it’s not just banks that will be impressed. If you’re asking family or friends for financial assistance, your chances of being taken seriously will be greatly enhanced if you can show them your beautifully presented and cleverly thought-out business plan.

Talking to banks, investors and lenders

No matter who you’re asking to lend you money for your small business, be prepared for lots of questions, some of which might make you feel uncomfortable. Think through the answers and rehearse them in front of your partner or a close friend. The more polished your responses, the more confident you’ll feel when talking up your business idea to a prospective source of finance.

Some of those questions might be:

  • How will you use the loan?
  • How will you repay the loan?
  • Does your business have the ability to make the payments required under the loan?
  • How much money do you need?
  • Can you put up any collateral?
  • Are you willing to put up any personal guarantees?

Commercial lenders will typically ask for:

  • Details of your current financial situation
  • Your tax returns
  • Security offered
  • A description of any litigation or bankruptcy filings
  • A completed loan application
  • And, of course, your all-important business plan

Put your best foot forward when talking face to face with possible lenders – and anyone else to do with your business. Dress and speak professionally, get your hair done (great excuse to visit your hairdresser), and carry your documents in a satchel. It’s also a good idea to find a babysitter for those times when Mum needs to talk business.

Approaching lenders for finance

Your first port of call may be your own bank. However, the big banks are by no means the only source of small business finance. If you don’t want to go with your bank, there are several small business loan providers in New Zealand. Do your own online search and you’ll find websites that will allow you to apply online for a free business loan assessment.

Grants for small businesses

Business grants from government or other organisations in New Zealand are few and far between. Whilst they do exist, they are generally geared towards research and development (R&D), and businesses with an established track record. They also often require an equal (50/50) investment from the business owner.

The Work & Income Enterprise Allowance is available to business operators who meet certain criteria. It is designed to help you overcome the financial barriers to self-employment so you can support yourself as a business operator.

You can find out more about Business Grants and the Work and Income Enterprise Allowance on the Starting Up a Business website from the New Zealand Government.

For more information on getting your business up and running, read our articles on How to Write a Business Plan, Setting up a Business and How to Set Up a Website.