Article

How do entrepreneurs fund their business?

Entrepreneurs and business owners are relying on the bank of mum and dad for funding, playing a huge part in many startups.

| 3 min read

According to our recent research, 20% of new businesses are funded by an inheritance and a further 19% by gifts and loans from parents.

The research, which sheds light on how business owners are funding and starting their businesses, indicates just how interlinked family and business enterprises have become in the UK. Around one in eight (14%) drew on a family trust for their initial funding of the business, and 10% went to their grandparents or other family members.

At a time when access to official forms of borrowing may be drying up, the bank of mum and dad is clearly a popular avenue for entrepreneurs to fund their business. Even as businesses become more established, business owners and entrepreneurs remain reliant on family for subsequent growth funding.

Roughly one in seven (15%) business owners and entrepreneurs said they used an inheritance they came into for further growth investments, while 13% leant on their parents. The vast majority (44%) said that they dipped into their own savings to initially fund their ventures. Only one fifth (21%) took out bank loans.

Key numbers: top ten sources of funds for entrepreneurs

Initial fundingSubsequent growth funding
My own savings44%33%
Bank funding 21%23%
Inheritance I came into20%15%
My parents19%13%
A family trust14%8%
Money from the sale of a previous business11%9%
Private equity 10%11%
Business network (i.e Business Angel network)10%9%
Sale of personal assets10%9%
Grandparents10%5%

How do entrepreneurs get started with their business?

The research also investigated the circumstances that gave entrepreneurs the opportunity to become business owners. Just over one in ten (11%) said they acquired the business from a relative, while nearly a quarter (23%) said they came into a sum of money, such as an inheritance, to purchase it.

“The Fortune Favours study reminds us that UK business is, at least in part, a family institution,” said Andrew Meigh, our Managing Director of Financial Planning. “For many entrepreneurs starting a new venture it is their own savings or inheritance on the line, so it is important that there are conversations about their personal and family wealth alongside a drive to build their business in the most tax efficient way.

Looking at how business owners and entrepreneurs describe themselves, nearly a third (29%) said they are custodians of a family business. Nearly half (49%) said they are first time entrepreneurs, while almost one in five (18%) said they are accidental entrepreneurs.

Careful planning is essential that entrepreneurs and business owners, who have multiple considerations to manage, end up with the best possible outcomes,” says Meigh. “This is especially supported by the finding that almost half of business owners are first-time entrepreneurs, and 20% are accidental entrepreneurs.”

“At Charles Stanley, we offer professional advice and work alongside multiple partners to help effectively manage your finances. We offer planning across the generations with both personal and business finances fully considered.”

Our experts are at hand to provide a financial planning perspective to business owners and their advisers as they decide the best way to fund their business. We works with legal, tax, and accountancy teams to help owners structure and manage owner wealth outside their business and ensures that a wealth plan aligns with a holistic plan for life including philanthropy, new business causes, and personal life and retirement.

Read more on Charles Stanley’s Exits in the UK.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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