Finances and funding are a vital aspect of successfully growing your business. Martin Brown, CEO of business growth advisory Elephants Child*, explores some key questions business owners have on this topic.

At a glance

  • Elephants Child have found in their experience, growing SMEs in the UK typically need between £50,000 and £250,000 for expansion.     
  • Business owners can choose between loans, equity investors, or self-funding based on their goals, risk tolerance, and the need for control.     
  • Tracking key financial metrics helps SMEs measure progress, monitor profitability, and make informed decisions to support sustainable growth.    

How much funding do I need to grow, and where can I get it?

Small and medium-sized enterprises (SMEs) are the backbone of the UK economy, representing over 99%1of all businesses. But how do we fuel the growth of these smaller but vital businesses?  

Growth is a key objective for many business owners, but scaling up requires strategic investment and funding.  No matter what  funding source you choose, lenders will want to see a robust business plan. Ensuring you have one in place will help maximise your chances of securing the funds necessary  for your growth plans.

How much do you need?

The amount varies depending on your sector, goals, and growth stage. At Elephants Child, we’ve found that a typical UK SME may require between £50,000 and £250,000 to expand operations, invest in technology, increase staff, or enter new markets. High-growth startups in sectors like fintech or health tech may need upwards of £1 million for product development and market penetration.

Where can you find the capital?**

Traditional options include bank loans and government-backed schemes like the British Business Bank’s Start Up Loans or the Recovery Loan Scheme. For more flexible funding, consider venture capital (VC), angel investors, or equity crowdfunding platforms. Asset-based lending and invoice financing can also help with short-term cash flow. Many business owners start with personal loans, credit cards and support from family and friends. Newer, fast-growing businesses might explore grant funding – especially in innovation-heavy sectors. Organisations such as Innovate UK offer non-dilutive grants for R&D activities. This is a type of funding which doesn’t require the business to give up any equity or share of ownership. Meanwhile, accelerators and growth hubs provide region-specific support and advice.

Ultimately, the key to securing funding is a solid business plan, realistic financial projections, and a clear growth strategy. Whether you’re scaling your team or launching a new product, the right funding can accelerate your chance of success. The right funding means matching funding to the need and understanding the numbers.

Should I take out a loan, seek investors, or self-fund?

Choosing how to fund your SME’s growth is a critical decision that depends on your business goals, risk tolerance, and financial situation. Here’s a breakdown of your main options:

Taking out a loan

Loans provide quick access to capital without giving up ownership. They’re ideal if you have steady cash flow and want to maintain control. UK SMEs can explore bank loans, government-backed schemes (like the Recovery Loan Scheme), or alternative lenders. However, you’ll need to manage repayments and interest, so ensure your growth plan supports future revenue.

Best for: Stable businesses needing capital to scale operations or assets.

Seeking investors **

Equity funding from high-net-worth individuals, angel investors, venture capitalists, or crowdfunding platforms can inject significant growth capital and strategic guidance. You won’t repay the funds, but you’ll give up a share of ownership and decision-making power. This route is best for high-growth, scalable businesses looking to move quickly.
    
Best for: Startups or SMEs in high-growth sectors like tech or biotech.

Self-funding

Also called “bootstrapping,” this method uses personal savings or reinvested profits. It allows full control and avoids debt or dilution. However, it limits growth speed and can strain your finances.

Best for: Early-stage businesses with modest capital needs and founders willing to take a financial risk.

There’s no one-size-fits-all answer. Consider your growth timeline, risk tolerance, and control preferences. Often, a hybrid approach – combining self-funding with loans or investment – offers the best balance. Securing that first “lead’ investor is a critical moment.

How do I improve my cash flow while investing in growth?

Balancing cash flow and business growth is a challenge for many UK SMEs. Investing in new staff, equipment, or marketing can quickly drain resources , but strong cash flow is essential to sustain that growth.

Start by understanding the numbers – specifically cashflow; by the day, month, rolling three and 12 months, be obsessive with it. Then tighten your working capital. Speed up cash receivables by invoicing promptly and consider offering early payment discounts. At the same time, negotiate longer payment terms with suppliers to hold onto cash longer. Using cloud-based accounting software can give you real-time visibility into cash movements, helping you make smarter, faster decisions.

Cut or delay non-essential expenses and focus spending on activities with clear return on investment. For example, digital marketing or automation tools often yield measurable growth for less upfront cost. Leasing equipment instead of buying can preserve cash and reduce financial risk.

Consider flexible financing to support investment without disrupting operations. Invoice financing, for instance, lets you unlock cash tied up in unpaid invoices. Business credit lines or revolving facilities can also offer short-term breathing room without long-term debt.

If you’re investing heavily, keep a cash buffer in place – ideally 3–6 months of operating expenses – to weather unexpected challenges. Finally, create detailed cash flow forecasts and revisit them regularly. Predicting cash shortages in advance gives you time to adjust plans or seek funding proactively. By managing cash carefully and aligning investments with growth priorities, SMEs can expand confidently without running dry.

What financial metrics should I track to measure progress?

To measure progress and make informed decisions, we recommend SMEs should regularly monitor key financial metrics. Here are the most important ones:

1. Revenue growth
Track month-over-month and year-over-year sales. This shows whether your business is expanding and if your growth strategies are working.

2. Gross profit margin
Calculated as (Revenue – Cost of Goods Sold) ÷ Revenue. A healthy margin indicates you’re pricing correctly and managing direct costs effectively.

3. Net profit margin
 Your bottom-line profitability after all expenses. It reveals how efficiently your business turns revenue into profit.

4. Cash flow
Monitor both operating cash flow and free cash flow. Strong cash flow is vital for daily operations and reinvestment in growth.

5. Customer acquisition cost (CAC)
This measures how much you spend to acquire each new customer. It should be compared to Customer Lifetime Value (CLTV) to ensure profitability.

6. Burn rate
Especially important for startups, burn rate shows how quickly you’re spending capital. Track it monthly to avoid cash shortfalls.

7. Debtor turnover
This shows how quickly you collect payments. A slower turnover can hurt cash flow and signal weak credit controls.

8. Debt-to-Equity Ratio
This measures financial leverage. A high ratio might indicate over-reliance on borrowing, while a lower one suggests stability.

Tracking these metrics helps you assess financial health, spot issues early, and guide your business’s growth with confidence. My key tip here is to make decisions that drive return on investment and enhance cashflow. Unlock your business potential

Get your business growth plan in place, decide where you want to take your company, and choose your funding source.

Navigating the complexities of finances and funding is crucial for every business owner looking to scale and succeed. We’re here to help, so get in touch today.

Source

1Gov.uk October 2024  

*We work in conjunction with an extensive network of external growth advisers and SME specialists, such as Elephants Child, who have been carefully selected by St. James’s Place. The services provided by these specialists are separate and distinct to the services carried out by St. James’s Place and include advice on how to grow your business and prepare your business for sale. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.** Please note that Venture capital, angel investors and equity crownfunding platforms are unlikely to be the first option for raising finance, as there will be conditions attached by the fund managers to any agreement reached, which by their nature will be more onerous than those imposed by a mainstream lender

SJP Approved 17/07/2025