Funding is essential for growth, but how do you ensure that you can secure it? Here Kim Farrell, Corporate Finance Partner at Essex-based chartered accountants CBHC LLP, offers some helpful advice.
Whatever the financial climate, funding should be seen as an important strategy to help diversify and grow your business – indeed, it’s often essential in order to take your business to the next level, and it’s never more important than during the transition from recession to recovery.
There are several reasons why you might want an injection of capital;
- To hire new talent, in order to expand and increase your client base.
- To bring new and improved products and services to the market, in order to boost profitability and improve customer satisfaction.
- To increase marketing and advertising, in order to raise brand awareness and boost demand for your product or service.
- To invest in new technology, in order to lower costs and help you stay ahead of the competition.
There’s currently a perception that credit is difficult – perhaps even impossible – to secure. This is understandable given the reports that have been published in the news in recent years.
The Bank of England has reported a record fall in business lending from the banks, while the chairman of the Federation of Small Businesses suggested that a significant number of organisations feel “put off by the high cost of finance.”
However, it should be borne in mind that such negative reports in the press can be something of a self-fulfilling prophecy. Such stories can engender a loss of confidence amongst business owners, which subsequently leads them to avoid applying for funding, when in fact lenders are still willing and able to offer finance to companies which can demonstrate that they have excellent prospects.
While it’s true that the downturn has made securing finance tougher, there are successful investors out there who are always in the market for a good investment.
It’s simply a question of taking the right approach, and of course the first step to securing funding is to develop a watertight proposition.
Any lender will need to see evidence of a well-run business with a strong sense of direction and good management team in order to be confident of their return on investment.
A good business planning history will speak volumes about your ability to take your business forward, so you should make this a regular part of your organization’s operations – think of it as a blueprint to the future, one that will be adapted and reviewed on a regular basis.
As a rule of thumb, you should revisit it on a quarterly basis and more frequently when you are seeking finance.
Banks and other third parties who support your business are constantly looking at risk: the more they understand about the business, how it works, who the key players are, what the market is like, and where the company derives competitive advantage, the more likely they are to offer support.
Key business funding documents
In addition to your regular business planning activity, you will need some fundraising-specific documents. Speak to your accountant to ask them to help you to:
- Identify the ways in which funding will best support your short and long term business goals. The better the predicted return on investment, the more certain you will be to find an investor who will fulfil your needs.
- Get your company’s financial statistics investor-ready with detailed breakdowns of past performance, current status and forecast activity. The stronger the financial background you can present, the better.
- Provide you with relevant market intelligence that shows how you compare favourably against competitors. The more market share you can demonstrate, the lower the risk to any potential investors.
- Help you optimise your management structure to put you in the best financial and organisational position possible. This is essential to ensure that your finances and your efforts are working in the most efficient manner, to maximise the potential for growth and profit.
- Single out the KPIs (Key Performance Indicators) that have a positive impact on your business to demonstrate that you are a proactive, professional organisation that is sure to succeed in the future.
Once these documents are in place, your accountant should be able to help you review the wide range of finance sources available – the most effective and proactive will look beyond the traditional channels to make sure you are able to get the best deal.
Don’t just assume that your own bank will offer the most attractive proposition.
Alternative sources that you may not have considered include government initiatives, such as the Enterprise Finance Guarantee scheme, grants and development loans, as well as business angels, private investors and financial institutions other than your own bank.
Kim Farrell is Corporate Finance Partner at CBHC Chartered Accountants. Kim is focused on bringing this expertise to SMEs, developing innovative financial strategies to support business growth.