As you prepare to enjoy the festive season, protecting your trade tools and equipment becomes more important than ever.
Trade Business Finances – How and Where To Get Funding For Your Business
For many hardworking tradespeople in the UK, building a successful business can be a labour of love. Whether you're a skilled electrician, a talented plumber, a dedicated carpenter, or any other tradesperson, your craft is your passion, and you take pride in providing quality services to your clients.
However, as with any business, financial stability is essential for growth and long-term success. Let's spend some time focusing on your finances and how to manage them, either when setting up your new trade business or looking for more funding to expand.
The Importance of Financial Stability
Before delving into the specifics of small business funding, it's crucial to understand why financial stability is such a concern for tradespeople. Many trades require substantial upfront investment in tools, equipment, and training. To keep your business running smoothly and consistently, you need a strong financial foundation. Here's why:
- Cash Flow: Smooth cash flow is vital for managing day-to-day expenses, covering unexpected costs, and ensuring you have enough working capital to seize opportunities or tackle emergencies.
- Growth: Whether you want to hire additional staff, purchase new equipment, or expand into new service areas, having a strong financial base is essential for growth.
- Financial Security: Financial stability allows your mind to settle and helps protect your business from economic downturns, allowing you to weather tough times with resilience.
- Customer Trust: Clients are more likely to trust and hire businesses that appear stable and well-managed. This trust can lead to repeat business and referrals down the line.
Funding Options for Tradespeople
Now that you understand why financial stability is vital, let's explore the various funding options available to UK tradespeople.
- Personal Savings:
Many tradespeople start their businesses with personal savings - if you have the money, then why not? This approach gives you full control of your finances but comes with a risk if the business faces challenges. Using your own money may save you in the medium to longer-term due to the fact you can pay for things upfront, as opposed to loaning any money and having to pay interest.
- Bank Loans:
Traditional bank loans are a very common source of business financing. They offer competitive interest rates and terms that can help you purchase large equipment or a van when just starting out. However, getting approved can be challenging, and it often requires some form of guarantee that you will pay the money back. On top of that, to progress your application, you will need to have a solid business plan that shows where the money will be spent and how you plan to pay it back.
- Government Grants and Loans:
The UK government offers various grants and loans to support small businesses - especially when starting up. As there is a skills shortage in the trade, the government and local councils are always coming up with ways to encourage qualified professionals to expand. A little bit of research and applying for programs that match your trade could go a long way!
Online crowdfunding platforms like Kickstarter can help you raise funds by presenting your business idea to a large audience. This is a good option if you have a unique project or product, and with the connection being formed online within the trades, you often find that others in the same line of work are happy to help each other out.
- Business Loans from Alternative Lenders:
Alternative lenders, like online lenders and peer-to-peer lending platforms, provide faster access to funds than traditional banks. They are also more lenient with credit requirements but often come with higher interest rates, which can sting if not paid back on time.
- Business Credit Cards:
Business credit cards can be a convenient source of short-term financing for daily expenses, and they often come with perks like cashback rewards or 0% credit for a certain amount of time. However, we always recommend being cautious of high-interest rates and putting large amounts on your cards.
Managing Your Business Finances
Securing funds is just one part of the equation; the other is managing the finances of your trade business effectively. Here are some financial management tips for tradespeople in the UK:
Create a detailed budget that covers your daily expenses, equipment maintenance, tax, insurance and savings for future investments. Sticking to a budget helps you stay on top of your financial health so that you are fully aware of your position should a downturn occur.
- Accounting Software:
Investing in accounting software or seeking a professional accountant/ bookkeeper to maintain your financial records can be a game changer for your business. This will help you make informed decisions and ensure you stay compliant with tax rules. What's more, they are experts and can inform you of relevant ways to use your money to make it work better for you whilst also sharing the most up-to-date industry knowledge and information relating to your money and tax.
- Tax Planning:
Similarly, working with a tax advisor to optimise your tax strategy could be a great idea. Many tradespeople in the UK are eligible for tax breaks and deductions, so make sure you're taking full advantage of them. On top of that, if you need cover for your taxes, Rhino Trade Insurance offers tax enquiry cover that helps you if you ever have issues with your taxes and need assistance ironing out the details.
- Emergency Fund:
Setting aside a portion of your profits in an emergency fund is smart business planning. Having a financial cushion is essential for managing unexpected expenses or economic downturns.
- Diversify Income Streams:
To better build your income, why not consider diversifying your services or product offerings? Expanding your business by offering similar trade services can increase revenue and reduce dependency on a single income source.
How To Build a Strong Credit Profile
A strong credit profile is vital when securing loans, credit, or financing for larger investments. Here are some tips for building and maintaining a good credit history:
- Monitor Your Credit: Regularly check your credit score to ensure it's accurate and up to date. You can access your credit report for free from agencies like Experian, Equifax, and ClearScore.
- Pay Bills on Time: Consistently paying bills, loans, and credit card balances on time is one of the most critical factors in maintaining good credit. Set reminders or automatic payments to avoid late payments.
- Reduce Debt: High levels of debt will negatively impact your credit score. Aim to reduce your outstanding balances, particularly on high-interest credit cards.
- Avoid Opening Too Many Accounts: Opening numerous new credit accounts in a short period can be seen as a red flag by lenders. It's better to focus on a few accounts and manage them responsibly - also, avoid making numerous applications for credit/ loans, as even just applying can affect your score.
- Use Credit Responsibly: Resist the temptation to max out your credit cards or take on excessive debt. Responsible use of credit shows lenders that you can manage your money and your obligations effectively.
Saving and Investing for the Future
While managing the day-to-day finances of your trade business is crucial, it's also essential to plan for the future. Here are some strategies to save and invest for long-term financial success:
- Retirement Planning:
Consider setting up a pension plan to secure your financial future. Consulting a financial advisor for guidance on the best options for your situation is your best course of action, as they will find relevant providers that fit your profile.
- Emergency Fund:
As mentioned above, maintain a robust emergency fund to cover any personal and business-related emergencies. The best practice approach is to aim to have at least three to six months' worth of living expenses saved as a 'just in case'.
- Investment Opportunities:
If you are interested in making your money work for you, look for investment opportunities that align with your financial goals. Perhaps you are happy with a pension pot that invests for you. However, you may be considering stocks, bonds, or buying property. Be sure to diversify your portfolio for reduced risk, and before investing, we would always recommend reading up as much as you can about starter investing.
Why Choose Rhino Trade Insurance For Your Business Cover?
Remember, the path to financial success may be challenging, but with the right strategies and support, you can overcome any obstacle and build a thriving business that stands the test of time.
One last thing you shouldn't forget is your trade insurance. When partnering with Rhino Trade Insurance, you are joining forces with an expert trade insurance broker with years of experience in the industry. Our team spends six days a week sorting protection for tradespeople around the UK at the best prices money can find. Our policies include public liability, professional indemnity, tool cover and many more. Get your next quote in less than a minute today by calling us on 0116 243 7904.