By Chris Cairns, Partner at Alliotts Accountants
According to a recent report by UK Trade and Investment (UKTI), the technology sector is one of the largest wealth creators in the UK and has become one of the fastest growing business sectors over the last decade. Most tech companies tend to be clustered in London and the South East with Wokingham attracting the highest cluster of tech company employment outside of London.
A number of my clients are technology start-ups who often have very particular financial issues that can mean the difference between success and failure. Here is some useful financial advice for four common problems faced by tech start-ups:
Small technology businesses often start off with a great idea that requires some work before the company can grow. If you get finances right early on, the sky’s the limit when it comes to success. I’ve dealt with small tech start-ups that have grown fast and made their owners a lot of money in a short space of time — however beware of some of the common pitfalls if you want your idea to succeed:
• Finance — start-ups often find it difficult to get initial funding for their business and end up relying on friends and family for help particularly if the business is at pure idea stage only
• Intellectual property – protecting your idea whilst at the same time being able to tell the market enough to be able to commercialise it is a fine balancing act. Get it wrong and your competitive advantage and business value will be gone
• Raising first round funding once seed capital has run out — it is vital that your business is in a fundable position prior to this. It is common that when going for first round funding the business intellectual property is still not proven but to raise funds it needs to be in a position where the path to achieving this is clear.
• Commercialisation of the project while still in R&D phase — usually some form of revenues will be required by the funders of the business whilst it is still in the R&D phase, both as a means to test the market and as a way of part funding the continued development. Often Tech companies find that this push/pull on focus is difficult to deliver successfully on.
The key for tech start-ups is to get good advice and work on the basics right before trying to grow. If you want to succeed, make sure that you seek out good financial advice right from the start.
Chris Cairns is a Partner at Alliotts Accountants based in Guildford and London. For details of how Chris can help your technology business , he can be contacted at firstname.lastname@example.org.