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Start-ups
What requirements must a business idea meet in order to secure financing? Also read about the legal requirements that exist to enable growth.
Many aspiring entrepreneurs can only turn an initial idea into a viable business concept with sufficient capital. There are a few things to bear in mind.
If you have a business idea but lack the required money, you need start-up capital to make your dream a reality. Firstly, you should use your own funds such as:
Many founders also borrow money from family or friends. Other options include business angels, government grants, technology funds or crowdfunding platforms. It is even possible to finance a start-up using retirement capital, but according to Jolanda Schwager Büchel, UBS’s market area manager for corporate clients, this should be used with caution: “I recommend only using retirement capital as start-up financing when other forms of private financing are not possible. The first step is to clarify how much of your current retirement capital you are willing to sacrifice. It is then equally important to make up/close the resulting pension gap.”
If a pension gap should arise, it can be closed through pillar 3. However, it would be wise to put money back into your pension as soon as cash starts flowing into the company. You can also close a gap via a loss of earnings or life insurance policy or via accident and health insurance coverage. According to Schwager Büchel, these costs are often given too little weight, but they should also be included in a good business plan.
If founders want to take out a loan from a bank, a detailed business plan is required. UBS offers start-ups the opportunity to create their business plan online. Our template can be adapted to your situation.
Young entrepreneurs have access to many attractive advantages at UBS, such as support with choosing the right legal form. Our client advisors are at your service with help and advice. Schwager Büchel elaborates further on which fundamentals are usually necessary for start-ups to receive financing: “Ideally, founders already have some orders in the pipeline, but in practice this is not always the case. I recommend clarifying the market potential in advance. Founders do not need to already have customers and contracts, but they should explore whether market potential exists.”
Founders should ensure their new business is legally secure if they want to successfully finance their business idea. The most important basis for this is choosing the right legal form for the company. The most common forms are:
Good to know: In Switzerland, over 50% of new companies are sole proprietorships that take on the risk of personal liability. In the case of an AG or GmbH, liability is limited to the company’s assets. This is why as a bank, UBS often requires a personal guarantee for start-up financing, which involves the founders in the risk.
The next step for start-ups is to check whether all of the tax and regulatory requirements are met. This includes avoiding hidden equity arising from third-party financing from related persons or companies as well as compliance with minimum interest rates. If capital is raised from the public, the regulatory requirements of the Swiss Financial Market Supervisory Authority (FINMA) must be complied with.
A good business plan is the foundation for a start-up’s future-oriented and profit-oriented direction. Credit institutions and banks also need a plan in order to assess their investment risk. The classic business plan is divided into two sections: qualitative and quantitative.
This is where founders set out their business model and explain its feasibility through a combination of market analysis, development of a USP (Unique Selling Proposition) and the sales and marketing strategy.
This includes a liquidity plan that takes into account both equity and debt capital. A detailed financial plan describes revenue forecasts and indicates when the company is expected to be profitable. A risk analysis with different scenarios also forms part of the plan.
Jolanda Schwager Büchel explains common mistakes when drawing up a financial plan: “Many founders are overly optimistic with their initial liquidity plan. It’s crucial to have the most realistic assessment possible for banks and credit institutions – especially when companies have to make advance payments or are dependent on large amounts.”
Successfully financing your business idea step by step
In addition to equity or debt capital, start-ups can lay the foundation for success by utilizing technologies and tools. In particular programs that are important for digital processes can consume a large portion of your income. It is therefore all the more important to review all expenses that are incurred at the beginning, as well as those invested for targeted business growth. These include:
The choice of office can also be a decisive factor for costs. Founders should ask themselves whether they need an office at all and to what extent it is necessary.
After the company is founded, all resources should be constantly reviewed, as requirements are always changing. Founders should not cling to old processes but should continually examine how efficient their procedures are to ensure they can continue to finance their business idea.
Marketing and sales are also important levers for implementing your business idea. Both are part of the business plan and come together to form an initial go-to-market strategy. When it comes to the question of financing – for example through a loan – providers also examine whether a company is likely to be successful based on its marketing and sales strategy. For example, they examine the target group analysis, the product’s positioning on the market and your start-up’s online strategy.
Founders can seek professional support here, as in any other area of founding a company. This can be in the form of external consulting, which is only used when needed. Training and further education help the founders themselves to build the necessary expertise.
Over time, professionals such as marketing or sales specialists can be brought on board, who will be responsible for these areas as employees. However, timing is crucial – while expert knowledge is often needed, financial resources may not stretch to a permanent position. Joining a start-up network can be a helpful way to benefit from important experiences and obtain support.
When coming up with a business idea, founders should also consider what growth they are looking to achieve in the coming years. Clearly defined milestones should be listed in the business plan, alongside the measures required to achieve these goals. Especially at the beginning, all growth factors should be regularly monitored in order to efficiently allocate resources and capacities.
In addition to a bank loan or leasing, UBS gives clients access to its networks. To date, the growth initiative SEF4KMU, founded by the Swiss Economic Forum (SEF), has provided more than CHF 100 million in growth capital to 56 companies. The UBS Private Investor Circle also brings companies and investors together. This has already led to investments of over CHF 120 million.
Regular personal contact generates trust between investors and founders. An annual financial statement is also required. I recommend that new entrepreneurs also create a quarterly or even monthly statement, which also serves as a regular check on where the company is at.
Many business ideas can only be financed with sufficient capital. There are numerous ways to achieve this.
Furthermore, young or existing companies looking to finance a new business idea should always use their own resources sparingly and strategically build up their marketing and sales. This way, the company’s growth can be financed in both the long and short term.
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