How to achieve small business success

By David Wilkinson Partner, Ernst & Young

How do you turn your idea into a thriving business? BBC News Online asked David Wilkinson to provide a roadmap to success.

Before pursuing any form of finance you need to ensure you have a good business plan to present to potential investors. This will be your blueprint for development.

There is a lot of readily available information out there to assist you. For example, Ernst & Young has a best practice business plan guide on its website or in hard copy, as do many other blue chip companies and professional advisers.

You also need to be able to communicate:

• what you need the capital for
• the nature of your business
• the market
• your plans and aspirations.

That will determine in turn what funding you have a chance of getting.

What kind of funding is right for you?

You can fund your business by equity, debt, grants or a combination of these.

As an entrepreneur you need to balance the desire to retain control of the business with your appetite for external funding David Wilkinson Email David for advice on how to start up or develop your business

As an entrepreneur you need to balance the desire to retain control of the business with your appetite for external funding.

Retaining control is often important and some funding sources can dilute your own return on the business.

For those of you who want to avoid such dilution, an attractive option is a traditional business loan from a bank.

Loans

Types of loan can vary greatly depending on the bank, so researching what is on offer is very important.

Alternatively banks may be willing to offer an extended overdraft facility if the funding requirement is relatively low.

It is also important for the entrepreneur to identify his/her personal goals. If 100% control is required, then often self-funding the capital is the most effective way of establishing a revenue-generating company.

If that is the case, it might be time to call in some favours from family and friends.

It's worth having a hard think, though. Which will yield the best returns: 10% of a business worth £20m, or 100% of a business worth only £20,000?

Venture capital

A second option is venture capital. Generally, venture capitalists have a less conservative view of risk compared to banks although the expected return is much higher.

The benefits of venture capital are many.

Venture capitalists can provide a good source of financial and management expertise when they invest in a company, as well as possibly make the company more attractive to other funders, especially secured lenders.

However, venture capital can be expensive with a great deal of up-front preparation required including potentially costly legal and financial advice.

Venture capitalists will take an often controlling equity stake in the company. For most entrepreneurs this is the biggest disadvantage.

Business angels

An alternative source of equity funding can be found in wealthy private individuals, known as business angels.

As with venture capital, these individuals will look for a high return rate through taking an equity stake in the business.

(However, they are more likely to support start-up ventures and will offer lower amounts of equity.)

Many business angels are established members of the business community who, in addition to providing much needed capital, can also provide invaluable industry insight.

The disadvantage here, again, is that the entrepreneur would have to relinquish a relatively large proportion of equity.

Grants

Grant funding remains a popular choice for business start-ups.

Government agencies such as Small Business Gateway offer help and advice on which grants are available.

Other types of assistance include soft-loans and consultancy assistance, which can help with the fund raising process.

A good source of knowledge is your local Business Link, which advises and helps on all aspects of setting up and running a business.

www.businesslink.org

There may also be some special initiatives or grants that are available to you depending on your individual circumstances.

For example, The Phoenix Fund encourages entrepreneurship in disadvantaged communities and groups.

Where can you go for more general assistance?

Small Business Service (SBS) is a government agency that champions small businesses.

The SBS operates a number of schemes & initiatives that are tailored to help people starting up a business. For example, Business Link falls under the umbrella of the SBS.

www.sbs.gov.uk

Local Enterprise Agencies (LEAs) are partners with Business Link and carry out business counselling and training.

They have a number of courses, titled the 'Start Right programme', run jointly with a high street bank, which can help you answer some of your questions (majority are free).

Most LEAs can assist in strategy, business planning & raising finance.

National Association of LEAs

The Busygirl Network, meanwhile, supports women entrepreneurs in developing fast-growth profitable businesses.

It represents about 8,000 corporate and entrepreneurial women and provides information about coaching and mentoring, business development and raising finance.

www.busygirl.com

There are a growing number of print publications that address the issues of this sector, such as Growing Business, Real Business and Business XL. There are also websites like startups.co.uk.

www.startups.co.uk

David Wilkinson is head of entrepreneurial growth markets at Ernst & Young.