This guide explores the implications of using public funding or private finance as sources of financing your projects, organisation or business. It includes information on: General guidelines Bank finance Business angels Sponsorship Public funding Crowdfunding
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Ideally your work will generate enough income to finance its delivery and ongoing development, and sustain you and your aspirations. It
may be easier to identify a direct income for some aspects of your work than others: you may be looking at a range of work and services so elements that are not income generating (but are vital to
the profile and development of your practice / business) can be subsidised by other activities.
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However, you are still likely to need finance to: •
develop your project
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sustain your venture until it is in a position to generate its own income
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subsidise activity that won’t create revenue
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General guidelines Before you invest time and energy in planning your venture, consider how others will value your work and identify who will buy and / or
fund your idea. Our Costing & Pricing Work guide will take you through some of the issues involved in putting a value on your work to help predict income, and the links within the Funding & Finance
section of our website can help you identify suitable funders. Try to identify a range of clients and / or funders so that you are not reliant on one income stream.
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To attract finance you will probably be expected to show some level of outlay yourself, complete an application process and support your application with a plan. It is much more difficult to get others to commit money to your idea if you don’t: •
demonstrate any investment from yourself or others
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articulate exactly how the money will be invested
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detail what the investor / funder will get in return for their contribution to your venture 5/31
For your own sense of security and the confidence of your backers,
you will have to prove that you can make a return on the investment you are asking for.
You will need to figure out how much income your venture can be expected to make and present this information in the form of a budget and a cash flow forecast.
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The most common forms of investment are:
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private investment and sponsorship
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personal investment: equipment, assets, security, cash, equipment from private sources / friends and family / partners / shareholders
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other investment: bank finance (overdraft, loan, enterprise finance guarantee), business angels, sponsorship, in kind support
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public funding: European, UK and Scottish government, local authorities, Creative Scotland, Scottish Enterprise, Business Gateway, Chambers of Commerce, Lottery funds
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grants and awards: charitable trusts and foundations
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Before approaching any funders or investors it is important to: •
Ensure that you have protected your ideas as your Intellectual Property.
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Ask yourself why you should invest in each funder – assess the benefits and downfalls of each funding opportunity individually and ensure that the offer is suitable for you and your business.
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Bank finance Finance options available through banks include: •
overdrafts
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credit cards – advisable for businesses wanting to borrow a small amount, i.e. less than £5,000
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loans
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Enterprise Finance Guarantee – supported by the Department for Business Innovation & Skills with lots of paperwork to prove that your application is viable 9/31
When approaching a bank manager for funding or finance, there are
two main criteria with which they will judge your application: •
risk assessment of your business
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ability to repay your finances
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When approaching the bank:
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Have a business plan drafted, but preferably completed.
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Remember, if a manager understands your business, he or she is more likely to support it.
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Ensure that your business plan is in a language that your bank will understand – do not include technical jargon. This might mean that you have a business plan for potential funders in clear business language, and another for potential creative partners which uses more specialist terms.
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Your business plan should include economic industry analysis and social trends.
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Your bank manager will want to assess the competitive quality of your business – why is your business going to succeed above others?
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Your business plan should detail a strong management team or allude to the fact you intend to develop one. This could be implied simply by identifying peers that you intend to involve in an ongoing evaluation of your business. 12/31
Bear in mind that banks make decisions on a purely financial basis. Don’t be discouraged if you are knocked back, keep trying. Sometimes you have to revise your business plan or present yourself differently for the bank to want to invest in your business. When deciding on the amount of finance to request, consider: •
Where your repayments are going to come from?
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Whether you are able to offer any personal contributions to match the funding? 13/31
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Do you understand your own financial accounts, the forecasting and analysis well enough to discuss them openly?
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Have you factored in any security that you might have available to underwrite a loan?
Realise that your financial accounts are for your use, not the bank manager’s. They should give you confidence and must demonstrate that your business is viable.
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Business angels Business Angels (BAs) are certified investors who put their own capital into your business. BAs will want to be involved in your business so this option is not advisable for owners of businesses who want complete autonomy. They would normally expect one or more of the following in return for their investment: •
part ownership of your organisation
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joint ownership of your organisation
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involvement on the board of directors: memorandum and articles / investment agreements / contract of employments
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that you register as a Limited Company
Bear in mind that: •
BAs take risks investing so need to know that you have a focused business and marketing plan.
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BAs receive hundreds of applications so make your business plan
stands out to ensure it is read. Out of 100 business applications received, only 10 are considered and only 2 or 3 are invested in. Make your business unique and sell its unique factors otherwise
BAs won’t be interested and won’t invest.
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Be creative with your marketing: create an interest in your business before you’ve even launched your business plan.
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BAs are interested in Small to Medium-sized Enterprises (SMEs) that have a high potential for financial gain. They will generally
expect their capital back after 3 years or at least expect a review of their profit return.
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Sponsorship To get sponsorship, you are expected to have a focused marketing
plan or idea of how your project is going to succeed. You should be able to describe how your project, marketing, audience and / or client group fits with a potential sponsor’s marketing needs, e.g. where and with whom their profile will be raised.
It is best to establish a relationship with all possible sponsors. They do not often appreciate being asked for money for one-off instances as they like to know that they are investing in a viable and ongoing project: where single events are part of a bigger plan and they can be involved in the growth of an individual or entity.
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Sponsors will expect you to be able to give them an exact figure of how much you need in sponsorship, the exact reason you need it (equipment, travel, marketing, fees, production costs etc.) and who else you are going to target for money. Some businesses also demand that they be the only sponsors in a certain sector so as to avoid competition.
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Public funding Public funding in the form of grants and loans are popular sources of start-up and project funding. Most funding from public sources, trusts or charities is dependent on your individual circumstances, those of your project or business as well as those of your audience / client group. Each funding scheme will have different criteria and usually fund a proportion, rather than the full costs, of any project. Do be prepared to commit yourself to a fair amount of research if you intend to pursue funding from these sources.
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Be aware that the competition for this type of funding can be high and
many funders are risk averse and therefore want to know that they are going to get the best value for their (public) money, that the idea is sound, fits with their aims and will be carried out reliably and competently.
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You can use the following questions as a checklist before making an application:
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What do you want finance for?
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What are the funder’s / financer’s aims and requirements?
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How does your venture and circumstances meet them?
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What are you investing?
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What support do you already have?
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Can you get finance / support elsewhere or by other means?
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Public funders will most likely ask for evidence of match funding. By this they mean that they would like to see evidence of other sources of finance that you (and others) are investing (e.g. personal resources, bank loans or grants) to match their investment. The match funding should be real money but may also include some ‘in kind’ support, e.g. the value of resources loaned to you at no actual cost, the value of hours contributed to your project voluntarily by supporting organisations.
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If you intend to apply for funds from a trust, local authority or any
public body to help it achieve its aims, some of the questions asked will include: •
Who are you?
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How long have you been in existence?
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What are you aiming to do?
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What is your financial responsibility?
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Who is responsible for decisions?
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These questions can be answered succinctly within a written constitution of an organisation. Some funders require that your business operates within a specific type of legal structure which provides an accountable management structure and many funding schemes are aimed at organisations rather than individuals. It is up to you to decide how much you want your business to be defined by the funder’s criteria but it is better to make decisions about your legal status and objectives based on the functions and needs of your business rather than be steered by your choice of grant. Try not to be rushed into hasty decisions. 25/31
Ask yourself: •
Would you be happy with the same structure and objectives if you didn’t get or need that particular fund?
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Will your options and creativity be limited by funding obligations?
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Will you be able to manage the additional administrative costs and paperwork?
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Many funds have strict application deadlines so do not leave your funding search too late. As soon as you begin to establish your business objectives start to investigate your finance and identify your need for funding or other investment. Cultural Enterprise Office can help you, through one-to-one advice
sessions, to weigh up the general implications of different funding strands. However you will be required to do much of the research on your own as it affects the future shape of your practice and requires
very personal evaluation and decisions. 27/31
Crowdfunding Crowdfunding is the term used to describe the collective support of many who invest or donate a sum of money to help get a particular idea (or project) off the ground. It promotes the idea of raising a large
pot of money from lots of little investments, which can take the form of advanced sales. Like all donation and sales campaigns, good marketing is essential to this way of raising money.
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As the name suggests, you need a crowd to make this viable so it’s best suited to projects with: •
a strong message and wide appeal, or
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where you have a good network of peers, or
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an established audience / fan-base
Ideally you have all of the above.
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Essentially you are asking your audience or peers to invest in you so make sure your project description is clear and concise.
Outline your objectives, what the money will go towards and describe those who may benefit from the project / activity. Be clear about what you are offering in return and ensure you can deliver on the promise, so you can increase the goodwill and anticipation for your next project.
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Next steps For further information on this subject, please refer to the following resources: Making Applications & Proposals Budgets Guide Cash Flow Guide Where do I find out about fundraising and sponsorship? An Introduction to Crowdfunding 31/31
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Disclaimer: Cultural Enterprise Office is not responsible for any advice or information provided by any external organisation referenced in this document.