Monday 29th Oct 2018
IT Consultancy Funding Options
With companies increasingly reliant on complex data and cyber security systems, along with regulations such as GDPR having their impact, IT consultants are in high demand. And consultancy firms that are able to deliver larger projects, such as complicated migrations, can command significant fees. If you’re considering the viability of running a consultancy firm, then one of the main concerns in the startup process will be funding.
What sort of funding options are out there, and which ones will suit the business best?
Launching a consultancy firm is likely to have a smaller cost associated with it than many other business types, as you won’t require things like stock, there won’t be lengthy product development costs, and you might not even need a premises from which to work from, as many consultants work either from home or at the organisation they’re currently servicing. This means that the initial round of securing funding may not be a major hurdle.
For this, you have a variety of options. Business loans are well known and understood, and are available from both the big banks, and other more specialist lenders. These will help you get off the ground and are ideal for funding things like the initial rental on office space, or the purchase of computing equipment and software. Interest rates and other repayment terms can vary significantly, so it’s always worth shopping around in this instance. There are also more modern options available, such as angel investors that can be mediated with online, or even crowdfunding. For any of these, your business plan will be key.
The point at which funding is really important is when you need to be flexible. Your main cost will naturally be your employees, and they’re also the asset that will allow you to take on more contracts, or larger contracts. This puts you in a position where you need to be able to bring on new recruits quickly to be able to meet demand, but you may not have the revenue to employ the staff. It’s a catch 22 situation that means you need to have money in the bank to increase revenue. This is why cash flow is so important for many businesses, and IT is no different.
You have a few different options here. Overdrafts are a traditional and flexible option that allow you to dip in and out as necessary, which means that you can bring on and pay staff quickly before the money comes in from new contracts. However, they’re not always a cheap option, and if you find that you need a larger overdraft at any point, you might have to make an application and renegotiate terms which can cause a delay.
Alternatively, there are non-traditional options that may also be useful. Invoice finance is a type of funding that works a little differently but could nonetheless be useful. To combat the issue of long waiting times between the raising of an invoice and it being paid, for a small fee an invoice finance provider will pay you most of the value of an invoice as soon as you raise it. This can dramatically help cash flow, which could be very useful indeed when you’re trying to win new contracts. Rather than having a significant gap between the hiring of new employees and the revenue coming in, invoice finance allows you to shorten that time. In addition, some invoice finance products allow you to leave all credit control to the provider, which could be ideal if you’re running a lean organisation.