Finance for tourism start-ups
This Finance for Tourism Start-ups Info Guide covers sources of funding. It also includes a Financial Projections Tool.
Finance will be needed to cover some or all of the following:
- Research and feasibility studies
- Purchase of property and equipment, refurbishment and fit-out
- Start-up or pre-opening costs
- Initial business outgoings (eg, staff costs, insurance, taxes, loan capital and interest repayments)
Remember!
- Long-term business investment, eg in property or significant equipment, should be financed by own funds and/or long-term borrowings, while short-term cash shortfalls may be covered by bank overdraft and short-term loans.
- Don’t spend unnecessarily but make sure that you have enough for the start-up and early days when receipts are not yet meeting all payments.
- Prepare a cash flow forecast for your business, and update regularly. This is an essential tool for determining your forecast funding needs and for identifying cash shortfalls in good time for action to be taken.
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| Source |
Description |
Advantages |
Disadvantages |
| Own funds |
- Money you invest in the business, eg from savings or re-mortgages.
- Usually not repayable until the business ultimately closes down or is sold off. |
You are not giving up any ownership of the business. |
It is likely that you will have limited funds available for personal spending. |
| External Investors |
Third parties who invest capital in the business (eg in-laws and friends), or unconnected investors |
This may be a relatively cheap source of finance. |
- The investor may wish to take some control over how the business is run and will seek some return on investment. With the right investor, this might actually be an advantage. |
| Borrowings |
- Capital lent to the business usually from banks.
- Repayable at a specified date - interest is charged.
- Leasing equipment, fixtures and fittings is also a form of borrowing where you repay over a period of time with interest. |
This form of funding, together with other funds, is normally the essential ingredient for kick-starting a new business venture. |
|
| Grants |
- Depending on the nature of the business, there may be grants available (usually from Government agencies) to help fund capital expenditure and / or defray some operating costs.
- Grants may be available to encourage business development in areas that the Government is seeking to promote. |
Useful for reducing initial costs and helping the business to get under way. |
Grant award conditions, some of which may continue in place for some years, may pose difficulties. |
| |
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Identifying the right sources of funding is critical. Making the wrong decision, eg overburdening your business with expensive debt and onerous loan repayments in the start-up phase, could lead to the end of your business.
When deciding on sources of funding, you need to consider the following:
- Availability of own funds - what funds do you and any partners have?
- How much will a bank or investor be willing to lend? This will depend on factors such as the business risk, your personal track record, the level of funds being invested by you and evidence that the business is viable.
- Are you starting a business in an area where grants may be available?
- What security have you to offer external lenders? For example, title deeds to the business property, personal guarantee, re-mortgage of personal assets.
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Before any third parties, including banks and grant-aiding agencies, invest in your business, they will want to learn more about you and your planned enterprise to satisfy themselves that the venture is financially viable. Your Business Plan provides this information.
Use this Business Plan template to prepare a Business Plan for your business.
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Use this Financial Projections Tool to prepare your financial plan.
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