Tech Startups

How tech start-up companies can avoid going bust

Despite the success of many modern tech firms, tech start-up companies still have a difficult path to walk before making themselves known and showcasing their innovations to the world. 

On one hand, the world is moving faster than ever before, with the UK now fourth in the world for global tech investment. On the other hand, smaller tech enterprises are often having to weather the storm of early trading and continue to thrive in the wilderness before they become established businesses. And it’s still a fact that around 1 in 5 UK start-ups goes bust within the first year, with a sizeable number of them likely to be tech start-ups. 

Although tech companies can often benefit from lower operating costs, they still face the same financial burdens every other small business faces including having to chase money from a debtor for example. What they do have in their favour is the unremitting evolution of technology across every aspect of daily lives, which ensures the demand for tech solutions will never diminish.

So to ensure that your tech start-up makes it through those critical early years and avoids insolvency check out what advice and support are available below…

Bolstering support now to avoid insolvency later 

It’s a precarious situation, and this digital tightrope walk cannot be achieved without a few stabilisers to keep you moving forward and closer to your ultimate goal.

But where would a small tech business find that support? Explore some of the following ideas and insights below, and your tech start-up can avoid insolvency, steer the course during those difficult first few years, and reach more prosperous horizons in the future. 

Look for local support

One of the most promising things that the UK offers to newly developed businesses is the opportunity to get extra support and guidance on a localised level. This support comes in the form of an intricately designed network of Growth Hubs, which businesses can use to track down their own local hubs. 

These hubs help to cultivate new programmes and support systems to develop Local Enterprise Partnerships (also commonly referred to as LEPs). These Growth Hubs attract partnerships from small businesses, banks, universities, business schools, and more. 

While you’ll benefit from the networking and partnership opportunities alone, it’s also comforting to know that other small start-ups are experiencing similar concerns and difficulties. In fact, LEP Growth Hubs have helped over 2 million businesses in the last year alone!

Explore tax relief initiatives

The United Kingdom has some innovative tax relief programmes that have been set up to give technology start-ups more opportunities and fewer tax liabilities. These new support programmes have been put in place to resolve some of the biggest issues that tech start-ups face, such as:

  • Connecting investors with the right start-up firm
  • Mentoring and advice for new businesses 
  • Boosting diversity through training 
  • Key networking skills and insights 

The process of qualifying for these relief initiatives can be difficult. In many cases, it may be worth considering working with an experienced financial expert to help guide you through the process. 

However, there’s a lot more to discover for yourself with a little patience and some online searching, which we’ll explore below. 

Visit the government’s website

The digital services section of the government has cultivated a website to serve as the ultimate source of information and guidance for the initiatives they offer to small tech firms that are just starting out. 

With a custom search section that helps to separate information by location, sector and stage of your business, it’s one of the more user-friendly ways to find extra support and prevent financial difficulties.

Below are just 3 of the most popular government-led tax reduction opportunities for start-up companies available from their wide range of options. 

SME R&D Tax Relief

Obtaining an SME (Small or Medium Enterprise) Tax Relief can (in addition to the standard 100% reduction) allow SMEs to deduct a further 130% from their annual profit’s qualifying costs, for a total of 230% in deductions. 

Your start-up may even claim a tax credit if you’re making a loss, sometimes up to 14.5% of your surrenderable losses. To be eligible for SME Research & Development relief, you’ll need to be an SME that meets the following criteria: 

  • You have under 500 members of staff
  • Your turnover is under €100 million 
  • And your balance sheet total is under €86 million

Before applying, you’ll need to be a small to medium-sized business that meets the government’s definition of R&D, which you find more information about here

If you have outside investors, you’ll need to include the figures for those partner companies in your application, as this can potentially affect your status as an SME. 

The Seed Enterprise Investment Scheme (SEIS)

This business savvy scheme has been devised to give companies the means to raise funds when it starts to trade. To lure investors into purchasing shares in a new venture like a tech start-up, tax relief incentives are offered to anyone who buys shares in your company. 

Start-ups can potentially gain a maximum of £15,000 through The Seed Enterprise Investment Scheme (this will count towards later investment limits in other venture capital initiatives you participate in). 

Companies who enter into this scheme are expected to stick stringently to the rules of the SEIS scheme to maintain the tax reliefs of their investors. If your company fails to adhere to these rules for at least 3 years after an investment has been made, all tax reliefs will be withheld from your investors. 

Employment Allowance

This helps eligible employers to reduce their National Insurance by £5,000. By allowing your business to pay fewer employers’ Class 1 National Insurance until that £5,000 has been used up, you’ll benefit from this initiative each tax year, even if your liability was below £5,000 per tax year. 

After submitting a claim for Employment Allowance, your application should be resolved within 5 business days. You won’t receive an official letter from HMRC confirming you’ve been successful, but you will get an automated response from them if your claim is unsuccessful. 

Before proceeding with a claim, be sure to check their comprehensive list of qualifying factors to be sure your business is eligible. 

Call the Business Support Helpline

You may think that while the options above provide you with some avenues to explore, you’re still not sure where to turn for advice that pertains to business planning, diagnostic guidance, and more. 

That’s where the Business Support Helpline can help to elaborate further while also helping you to gain local support as well. You’ll even have the option to ask for a call-back to discuss more complex and urgent business matters with a professional Start-up Support Advisor. 

Further funding methods 

Finally, the following 3 funding programmes are certainly worth taking the time to explore while weighing up your options. 

1) Innovate UK

A public body that hosts funding competitions to provide businesses working within the science and technology sector with funds to continue their work. Companies can win anything from £250,000 to millions of pounds for the right entrants. 

2) The Small Business Research Initiative

Commonly known as SBRI, this initiative is aimed only at small to medium-sized enterprises. Businesses can win amounts ranging from £50,000 to £100,000 for the right idea. This scheme focuses on innovation above all else, with the potential of a £1 million development contract up for grabs as well. 

3) The London Co-Investment Fund

With a focus on investing in tech and science start-ups in the London area, this collaboration between Funding London and Capital Enterprise offers anything from £25,000 to £1 million to applicants. 

Forging the path toward a prosperous future

Financial burdens for small businesses can come out of nowhere, sometimes when your company is on the very cusp of achieving its goals. But the increased demand for technological advancements means that with the right support network, anything is possible.

And if you can find that extra monetary reinforcement to push through those difficult first few years, your tech start-up can continue to exceed expectations and achieve unlimited potential in the future. 

Angela Scott-Briggs

Editor, TechBullion.com | Interested in Innovations in Business, Finance, and Technology .

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Angela Scott-Briggs

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