Please note that this section does not attempt to consider internal financing methods – for example ordinary share capital or preference shares – but concentrates on the external financing of a business via institutional lenders.

For any business considering methods of funding its operations, the first option will usually be creditors’ money. This is the cheapest form of finance and is probably the most readily available provided that a business has an acceptable credit rating. In any case a businessperson will be put through fewer hoops in order to gain a credit limit from a supplier rather than a bank.

On the other hand a new business or a business with a limited track record may well have to endure pro-forma invoicing until a track record has been established.

A business seeking institutional finance will be faced with a bewildering choice of finance options and accessing the most appropriate option for the business can be a prolonged chore. Advice at an early stage from a reliable and informed source such as an accountant, solicitor or a professional advisor such as Capital Strategy could well prove to be the best investment a business can make in its early stages.

There is no substitute for a well-prepared forecast at any time in the development of a business. As a minimum, a set of forecasts should attempt to predict what is expected to happen over the next 12 months. These will help management, their advisors and financiers ensure that the correct level and mix of funding is in place at the outset.

Incidentally, the forecasts will rarely if ever prove to be “right” and indeed forecasts when presented to bankers almost invariably suffer from “celestial magnetism” a strange but common malaise that draws the figures up towards the sky! The result of celestial magnetism is that most forecasts show a peak borrowing requirement in month two and a credit position by month ten or eleven.

The fact that forecasts rarely if ever prove correct misses the point and should never be used as an excuse to avoid completing them. At the very least forecasts show the current thinking of a business and will predict the areas of possible weakness in the plan.

The fact that life will always produce something unexpected to spoil the plan is inescapable although inevitably businesses exceeding