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Signs Your Small Business Needs Investment

By May 12, 2015 No Comments
Signs Your Small Business Needs Investment

Small Business InvestmentIt’s easy to get so caught up in day-to-day business and overlook clear warning signs on the horizon, especially if they may cost you money. Whether it’s not having the right staff or enough of them, relying on out-of-date processes, or using equipment no longer fit for purpose, sometimes it’s preferable to overlook problems until they become impossible to ignore – or, worse still, they’re pointed out by customers or suppliers. Even bosses who do spot the gaps in their business are often reluctant to seek the external finance sometimes needed to address them. What are some of the indicators your enterprise is in need of extra investment?

When processes slow down

Many smaller companies still rely on manual processes, which can be slow and prone to human error. Even those that use technology can get left behind by the latest digital innovations. We’ve talked before about how to recognise your firm’s outgrowing its business processes, but if your organisation’s slower at taking orders, struggling with administration, or losing potential new business, then it’s probably time to find cash to improve your IT infrastructure. And if your competitors are outstripping you by using automated ordering, sales or packaging, you should be doing the same.

  • A cloud computing system needn’t be expensive, and it gives firms access to networks, servers, and data storage to integrate business processes, work on the move, and build scalable systems. More SMEs are outsourcing their IT provision entirely to external providers, according to a recent report by cloud service Node4. Again, Boost has tips on how technology can improve business practices, but always shop around, and research cloud providers. Rates range from pay-as-you-go options to full system support, so consider what level of back-up you need for your money.
  • If you do your bookkeeping manually, accounting software can be a worthwhile upgrade, saving you time and money. You can track income and expenditure easily, and tackle greater levels of complexity. Many business owners turn to big names such as Sage or QuickBooks, but there are a range of options available, some of them free. Ask your accountant for advice, or see the guide to online accounting published by the Institute for Chartered Accountants.

When equipment becomes defunct

Few businesses can afford to buy all the latest gadgets, and it’s understandable smaller enterprises want to wring every last bit of use out of their PCs, IT hardware, and machinery. But sometimes it’s obvious when something is reaching the end of its useful life, either because it becomes unreliable, or it breaks down. Maintain equipment, and keep an eye on any emerging problems to avoid being left without a vital piece of kit. But, also, admit when it may be time to shoulder the cost of buying a new item altogether.

  • Is it time to upgrade your IT systems? Your current computing package may have been at the cutting edge when you bought it, but there could be faster, more sophisticated technology now available. If your system is sluggish or prone to crashing, then new software could create savings in the longer term. The Government has a video guide about how to assess your business’ IT needs, where to buy, and whether to pay upfront or lease equipment.
  • Are your plant, machinery, and other non-IT items working as efficiently as possible? Firms that rely on heavy machines, vehicles, and manufacturing equipment must buy new units from time to time due to wear and tear, and most will have factored in the depreciation and deterioration of machinery at the time of purchase. But keep up with new developments and innovations that could improve productivity. Typically, new equipment means a big financial outlay, so always research any potential purchases thoroughly, and then decide what type of funding’s best, whether asset finance, invoice factoring, or a business loan.

When you’re outgrowing your premises

It was a lesson Boost Capital customer Vanity Studios learned when its photography company became so successful it found itself turning away customers. Sometimes, you need more space not just to succeed, but also to avoid damaging your business. But taking on a second premises or moving to a larger site inevitably involves cost. There’s the expense of the physical move, upgrades, and lost business – £40,000 on average over a five-year period, according to research by energy firm E.ON. So, there are serious things for company owners to consider:

  • What’s the cost of rent or mortgage repayments? Are these bills at a fixed rate or might they increase over time in line with interest rates? If you’re renting, you could negotiate a better deal with your landlord, allowing for a rent-free period while you get established, and putting in a break clause if the lease runs over a period of some years. Check how often rent reviews are likely.
  • How much will bills be in the new site? Are there any service or maintenance charges, stamp duty land tax payable on top of the rent, business rates, security charges, plus the usual utility and business insurance costs?
  • Where to go? If you can find an area where commercial property is in over-supply, you could be in a position to strike a hard bargain. But, equally, the site must be attractive for customers and suppliers. Look at your business plan, and reason whether this building will accommodate you and your company through any medium-term growth. A commercial property agent could help to find the right place within your budget.

When you need more staff

Similar to the business premises issue, needing more staff is generally a good sign, and more SMEs are planning to hire further employees, according to the Federation of Small Businesses (FSB). However, even though business is going well, it’s still a big decision. It may be that you haven’t got enough people to fulfil orders, or simply need new skills in your organisation. But there are financial considerations to take into account:

  • Grow staff numbers or increase turnover first? More employees cost money, which generally means more takings – which require more staff to generate. It’s a Catch 22, which means you probably need to employ new workers even if you haven’t got the upfront capital to cover them. Total annual employment costs for the average SME with six members of staff are £189,600 including salaries, benefits, and non-wage costs, according to a study for the FSB by the Centre for Economic and Business Research (CEBR). And new hires add to this considerable outlay. A business is likely to need to bridge the cost of bringing a new person on board, perhaps with a short-term business loan. The new recruit should soon be paying their way, and the lending can be quickly repaid.
  • Employment costs vary by sector. The CEBR findings show that health and education sector workers are the most expensive to employ, while firms operating in the accommodation and food services sector have the lowest wage costs. Do research to see what the going rates are for the posts you’re creating.
  • First employees are more costly than staff hired by firms that are larger. In essence, as businesses grow, they tend to become more cost efficient in employment terms, with fewer unavoidable overheads. For example, a one-man-band taking on its first worker will spend an average of £35,500 per worker, the CEBR found, while a business with between 20 and 49 staff will spend only £25,100 per employee on average.

Once you realise you’ve a business investment to make, you must find the money. Whether it’s a loan from the bank, turning to family and friends, or using alternative finance providers like Boost Capital, borrowing can be a necessary and good thing for your business. Without it, and the extra boost it brings, you could be putting your company at risk of being left behind your rivals.

Speak to a member of our business loans team on 0800 138 9080

More businesses than ever before are looking to Boost Capital for their business financing needs. To learn more about how our UK small business loans work or to explore the business financing options that are available to you, contact us today!
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