How to Fund your Business: The Complete Guide

With almost 90% of consumers making online purchases in 2020, it’s clear that ecommerce is dominating the retail space. By selling products online, you can reach customers all over the world and build a highly profitable business without the constraints of a traditional retail space. Equally, many brick-and-mortar stores have benefited greatly from the online marketplace over the last couple of years, particularly as many closed their doors for long periods during the coronavirus pandemic. 

In this guide, we’ll explore how to grow your ecommerce business. So, keep reading to discover everything you need to know about ecommerce business funding.

Industry outlook

Before we get started with the practical steps, let’s take a closer look at the ecommerce industry and how it’s shaping up for 2022 and beyond. The last decade has brought a steady increase in ecommerce activity as many more consumers become comfortable with shopping online. This growth was then expedited by the coronavirus pandemic and subsequent lockdowns, which resulted in the closure of all non-essential businesses across the UK on three separate occasions. 

As a result, consumers began shopping online for just about everything - from sending cards and gifts to loved ones they couldn’t see in person to ordering weekly grocery shops and even the rise of the subscription box model, bringing a small joy to customers’ postbox every month. While we don’t know the exact growth figure yet, we do know that the most recent statistics from the Office of National Statistics state that the UK’s ecommerce market was worth £639bn in 2019. Given the change in consumer habits over the last couple of years, we expect that trillion pound figure isn’t far away.

Not only is the industry booming, but the UK has the most advanced ecommerce market in Europe, making it a hotspot for new and growing online businesses. Consumers across Europe and further afield choose to purchase from UK businesses either via Amazon, eBay or on ecommerce sites built with popular content management systems (CMS) such as Woocommerce and Shopify. While the industry is at a full time high, it’s certainly not peaked and there is still ample opportunity for new retailers or those already operating in different spaces to move into the world of selling online.

The same ONS data shows that wholesale and manufacturing were the two biggest industry sectors generating the highest ecommerce sales in 2019. This information challenges common beliefs about how ecommerce works, and for which industries it can make the most impact. Previously, we have seen B2C brands thrive online, with other more traditional companies demonstrating a hesitancy to change, but this data shows that those underdeveloped areas present the highest yield in the digital space.

The future of ecommerce

So, what’s in the future for ecommerce? We’ve already seen consumer expectations reach an all time high. More than three-quarters of consumers cite free shipping as their reason to shop online, meaning speedy delivery is no longer just a benefit for ecommerce brands, it’s a necessity. Only a quarter of consumers in the US say they would wait 3-4 days for delivery, while 44% expect orders to be shipped within two days. 

Amazon has set an industry standard for speedy delivery, having offered Prime Delivery for over a decade now. Even despite the addition of the company’s streaming and ebook services, 77% of Amazon Prime users still cite unlimited free delivery as the main perk of the service. The ecommerce giant continues to set new standards as they launched Same Day Delivery in 2020. The service is now available across many parts of the UK and allows customers to purchase items and receive delivery before 10pm on the same day. 

Alongside faster and more efficient delivery services, it appears that the online shopping experience will continue to evolve and become even more immerse for consumers. Facebook’s parent company Meta launched their virtual reality venture “The Metaverse” in 2021 and brands are already beginning to explore how they can bring online shopping into the VR world. Ecommerce brands should also pay close attention to the rise of mobile payment options, AI-fuelled advertising and voice search for 2022 and beyond.

Now we’ve explored the ecommerce industry outlook, it’s time to turn our attention to your online venture and how you can best position yourself to lenders and put funding behind that strategy.

Writing your ecommerce business plan

A business plan is vital for any company looking to seek funding to nurture future growth. When it comes to writing an ecommerce business plan, there are certain sections you will need to include to ensure lenders and investors take you seriously.

It’s likely that you have a business plan document, so you might be tempted to skip this section. But we highly recommend reading through our recommendations as we work with businesses like yours every day to help them get the funding they need to grow. And, as part of that process, we help ecommerce businesses to assemble comprehensive business plans that clearly present their strategies in a clear and concise way. 

So, what do you need to include in your ecommerce business plan? 

Executive summary

Every business plan starts with an executive summary, typically just one or two pages to summarise the following document. What you include in this section will depend on the type of business you run, but there are some key factors that your lenders, investors and other potential stakeholders will be looking for. 

You should look to include key financial figures in the executive summary, such as turnover, profit and COGS (Cost of Goods Sold), this will give a lender insight into your previous performance and help them to assess the risk of their potential investment. 

In addition, you should mention how long you have been in business, how you currently manage stock and which platforms you sell from. You could also mention any future plans and how investment will help to achieve these. While each of these areas will have its own detailed sections in your business plan, the executive summary is the best place to highlight the key facts and figures so the reader can access the information they need quickly and easily. 

Although the executive summary typically appears at the start of your business plan, we recommend leaving it until last as this way you can spot the highlights you want to include from each section.

Market analysis

In the same way, we explored the industry outlook at the start of this guide, we recommend including information about the market in which you operate in your business plan. How does your product fit into the existing marketplace and what need does it fill for consumers? This is where your marketing research comes in, as well as any information about competitors and potential growth opportunities can really strengthen your case for funding and, ultimately, improve the business plan as a whole.

You will find a lot of information online about the market you are entering or already operate in. And, if your ecommerce venture is already online and selling products, then don’t forget to delve into your analytics - either on your own websites or via the third party platforms you sell from. In this section, you will find a wealth of information about who is buying from you, where they live and how much they spend. 

From here, you can build out customer profiles that will inform your marketing strategy and other vital parts of your business spending. It’s also worth including any relevant industry trends here, such as cutting edge technology that may impact the way you operate your business and sell your products.

Business operations overview

How your business operates is of great importance to the readers of your business plan. In this section, you should include:

• Who is involved in your business and what do they do
• What do you sell
• Where do you source your products from
• Where do you store your products
• How and where do you currently sell your products 

Plus any other information that is relevant to the business operations of your ecommerce venture.

The purpose of this section is to give lenders, investors and stakeholders insight into how the business works and where you see it going. For example, if you currently sell on Amazon and partake in the platform’s Fulfillment By Amazon (FBA) service, then this section is where you detail how that works and what considerations you make to ensure the success of your business. 

Equally, if you sell products in multiple places, for example via Amazon, eBay and also on your own Shopify website, then you should explain how this works - Do you store all of your products in the same place? Do you have the same pricing structure across all ecommerce platforms? Do you intend to continue this strategy or focus on one or more specific platforms in future?

You may find that this section is particularly long and detailed, but don’t worry because you will be able to extract any key information that you don’t want readers to miss for inclusion in the executive summary.

Financial accounts

Once you have established the business operations, it’s time to take a deep dive into the figures. In this section, include your most up to date accounts. Even if you don’t have a full year of accounts, it’s worth adding a quarterly statement to show your revenue, profit and expenses. As an ecommerce business, you will know that some information is vital to the success of your venture - such as investment in products, COGS and pre-tax profit. 

The finance section of your business plan isn’t just about your accounts, but also your finance. If you have secured finance in the past then mention it here, as well as any other investment either from your own pocket or other stakeholders. 

Equity is the investment you, your company or your other investors have put into the project. This is typically a cash investment, either made at the outset or as part of an ongoing model. Typically, when it comes to ecommerce businesses, an upfront investment is required to purchase the initial stock, pay for fulfillment and warehousing and also any platform fees such as web hosting and domain registration. 

Many people embark on ecommerce ventures under the false assumption that starting an online business is cheaper than a traditional bricks-and-mortar shop. And, while there are some ways you are saving on common costs like rent and business rates, starting and running an ecommerce business does come with its own costs. From purchasing stock through to storing and fulfilling orders, managing returns and maintaining your digital presence, there are a lot of costs to consider. 

You may be at a juncture where you are looking to secure a new round of finance to fund an area of growth, or you are looking to switch finance products to one that better suits your current circumstances. Whatever your future plans, understanding your finance structure is the first part of this journey - so be sure to include plenty of detail in this section of the business plan.

Sales and marketing strategy

You might have a fantastic product but without a sales and marketing plan, your potential customers may never know you exist. Marketing is the discipline of spreading the word about your product, and drawing the right eyes to your online store. This is typically done through a mixture of methods, including social media advertising, PPC advertising (Google Ads), influencer marketing and SEO (Search Engine Optimisation.)

Meanwhile, a sales strategy will cover the activity that gets website visitors through the checkout process and even encourages them to buy again or refer their friends. Tacts such as referral codes, email newsletters and partner schemes all help to boost repeat sales and should be considered as part of your sales strategy.

Now this isn’t an exhaustive list of everything you should include in your business plan, but it will give you a good headstart to creating a document that will both elevate your ecommerce offering as well as provide lenders, investors and stakeholders with the information they need to determine whether your business is the right investment for them.

Understanding your COGS

As an ecommerce business owner, you will already be familiar with the concept of COGS (Cost of Goods Sold). As the name suggests, this refers to the cost incurred when creating or acquiring the products that you sell. This is an important part of any ecommerce business’ finance structure and, therefore, deserves its own section in our guide.

Depending on how you evaluate the stock in your business, the way you calculate COGS may differ. For example, if you operate using the FIFO (first-in first-out) method, then your oldest inventory items will be used to calculate the COGs. Alternatively, the opposite is true if you run by LIFO (last-in first out), whereupon the cost of your most recent inventory purchase informs the COGS.

So, if you calculate COGS by FIFO then you simply need to determine the cost of the oldest items in your inventory and multiply that by the inventory sold. With the LIFO method, the assumption is that the most recent items added to an inventory are sold first, and therefore this is how you calculate COGS. 

Which method you choose will depend on a number of factors, including how long you have held your inventory and whether the product prices are in flux as a result of a sudden need or even just inflation. 

Why does COGS matter? Well, this is a vital figure for all ecommerce businesses as it gives a clear insight into cost vs. profit. Of course, the cost of goods isn’t the only cost you have to take into account, as marketing costs, staff wages and warehousing costs will all impact your profit margins.

Even online, retailers typically have lower profit margins on average than other industries. According to industry data, 10% net profit margin is average, while profit margins of 20% and above are not unheard of in certain industries operating in the ecommerce space. There are many ways to maintain and even increase your profit margins, and understanding the COGS is the first step towards taking control of your ecommerce business’ financial situation. 

Stock management

FIFO and LIFO are also considerations for your stock management strategy. How you manage your stock is of interest to lenders and investors. When applying for ecommerce business finance, lenders will want to know the value of your current assets, and this includes stock. In addition, the cost of managing your stock should be clear from the outset. So, if you house stock at home or in a commercial space like a warehouse, then this will make a difference. 

Furthermore, stock management can stretch to covering fulfillment, i.e. how you fulfill orders. For example, some small ecommerce shop owners will fulfill orders themselves and even post them off at the post office or organise a weekly courier pick-up. This is a particularly common setup for small shop owners who make their products by hand and sell bespoke items via platforms such as Etsy and Not On The High Street.

On the other end of the spectrum, you may have a much larger scale operation that requires external fulfillment services. FBA (Fulfillment By Amazon) is a fulfillment service provided by Amazon that can help ease the burden of stock storage, management, shipping and even returns. If you intend to sell in volume via Amazon, then this is often a popular choice. There are also other third party fulfillment services that enable you to sell on Amazon and other platforms, so make sure you do your research to find out the best solution for you.

Stock management is both time consuming and expensive. Ecommerce business finance can help support you to take the next step in your business, whether that’s getting stock out of your garage and into a warehouse or even investing in a new product offering that requires additional storage space. How you intend to use your finance will inform the type of finance that you take out, while your business performance and other metrics will allow lenders to determine what is available to you. 

With that in mind, let’s dive into the common types of ecommerce business finance.

Types of ecommerce business finance

As an ecommerce business owner, you may not have several years worth of accounts under your belt. Whether you started a new venture during the pandemic or are looking to expand into new areas, you may need ecommerce funding to turn those dreams into reality.

Working capital finance 

One of the most common types of finance for ecommerce businesses, working capital loans help with the day-to-day running of your business, providing the necessary cash flow to pay expenses such as warehouse fees, stock purchases and staff wages. 

Working capital finance is typically a short term solution and, therefore, is usually paid back quickly. It can help to improve cash flow during difficult times and keep the business moving but isn’t necessarily suitable for funding a whole new arm to your business, for example. 

Mezzanine finance

Mezzanine finance sits between common debt solutions and equity funding and is often a popular choice as it allows you to retain more control.  A lender will provide the funds you need, secured on the future of your business rather than your assets.

Often you can secure a high level of funding, but you will need to repay debt and interest charges. If you fail to repay, then the lender may be able to take an agreed portion of equity interest in the business and this may affect your credit score and other personal financial liabilities. 

Invoice finance

Many businesses find unpaid invoices cause serious disruption to cash flow, especially when you rely on that income to buy stock or pay staff. Invoice finance can help to bridge that gap and the lender uses the unpaid invoice as security for the funding. This is another short term solution and funds can be released within as little as 24 hours.

Merchant cash advance

When shopping online, most customers will use their credit or debit cards to make purchases. This can open the door to merchant cash finance, a specialist finance solution that means your cash advance is paid back automatically and a small percentage of every credit card transaction goes back to the lender. This means every card transaction contributes to the repayment of your loan, or cash advance as it’s known in this case.

Stock finance

As an ecommerce business, a lot of your equity will be held in stock. Stock finance, also known as inventory finance, is another form of specialist finance that can help ecommerce companies to release funds when they need them most. With this solution, you can release funds currently tied up in your stock. 

Lenders purchase stock from your inventory and the debt is repaid as the stock is sold.

Secured loans

A secured loan is a common type of finance for businesses looking to gain a large amount of funding. As the name suggests, this type of loan is secured against the value of a fixed asset like a property. 

Unsecured loans

If your business is already established and making sales, you may qualify for unsecured finance. Unsecured loans differ from secured loans because they are calculated based on a number of different factors including the credit rating of your business and your business’ projected performance, rather than secured to the value of a fixed asset like a property or stock.

Growth capital funding

If you are seeking finance to fuel further growth, then this might be the solution for you. Growth capital funding can release a large sum of money without sacrificing equity or control over your existing business assets. To find out if you qualify for this or any other finance solution we’ve discussed in this guide, get in touch with Rangewell directly.

Ecommerce business funding from Rangewell

With millions of people shopping online, now is the right time to invest in your ecommerce venture. Whatever you sell online, and however you do it, you’ll need the necessary funds to boost your business from the outset and as you grow. From buying stock to paying wages and ensuring the best possible customer service, ecommerce business funding can help you to grow your venture and find success online.

However, finding and securing the right finance solution isn’t easy. By working with Rangewell, you can tap into the whole of market and access specialist funding products within your field. Our team of expert advisors will support you with your application and help to identify any risks that may affect the lender’s offer. The benefits of working with an experienced broker like Rangwell are limitless, so get in touch today to find out how we can help you to boost your online business today.