The Government is working to deliver new streams of funding for small businesses, but how can you make sure your company benefits? Read on to find out what steps you can take now to make the right impression when it matters…
Access to funding and where it comes from are key indicators of whether a company will succeed in the medium and long term. In recent months, for example, there has been a significant increase in the number of SMEs turning to overdrafts and credit cards to finance growth. It’s one thing if these methods are used to bridge a gap, but it’s far from ideal as an ongoing arrangement.
This reliance on flaky funding may seem strange at a time when Project Merlin has just pledged £76bn for small firms, and a further £10bn will be released in the forthcoming Growth and Innovation Budget on March 23rd. The Enterprise Finance Guarantee is also still available, although demand has reportedly fallen. However, it is the still the banks who will ultimately decide.
We work closely with the banks, as well as other types of investor, and while there is still a focus on increasing yield, they are still willing to lend if certain conditions are met. Their requirements haven’t changed – you simply need to prove that your business is viable and can service the debt.
In our experience, if you know what the bank needs to approve the deal, and have prepared in advance, the chances of success are greatly increased. Evidence of long term planning, sustained investment, effective management and market data are all required. That’s not to say that funding is back to pre-2008 levels, but the negative publicity surrounding bank lending might leave you thinking there’s no hope. There is.
In fact, throughout the recession period we’ve helped many of our clients raise considerable sums through traditional and alternative finance routes. Here are some guiding principles that will not only improve your standing with lenders, but also boost your company’s overall profitability and performance:
A safe bet
The first step to securing funding is to demonstrate that your business is well managed and completely stable. A detailed breakdown of past performance, current status and forecast activity will go a long way to achieve this, and we can help you put this together.
Furthermore, if you can demonstrate the strength of the company on the basis of less obvious factors such as staff loyalty, an efficient management structure and tested business systems, then your position is greatly strengthened. All these elements combine to build confidence and we can work with you to develop, implement and present them in a comprehensive business plan.
Show your working
The business plan is the foundation of a funding application and should be considered a strategic working document, helping to monitor and drive progress. When asked, many business owners will claim to know exactly where their business is going – tapping their head and saying “it’s all in here”. This places unnecessary pressure on them to hold all the information, and means that investors can’t readily appreciate the level of thought and strategic planning behind a successful venture. It also means that when the time comes to submit a funding application, they’re faced with the daunting task of getting it all down on paper while trying to demonstrate evidence of long term planning, control and profitability.
Keep your business plan brief, relevant and meaningful, with tangible goals that are regularly reviewed. Even the process of writing the plan will have a positive impact, helping to identify strengths and weaknesses and allowing others to engage with, and contribute to, the growth strategy.
Put yourself on the line
Most investors willwant to see that you are personally committed to the business, and that you are highly motivated to succeed. “Sweat equity”—unpaid personal time and hard work—can be important, but lenders like to see an entrepreneur with a significant financial stake in the business.
They also like to see that a company’s assets are intact, safeguarding its future and demonstrating the owners’ commitment to its survival. What counts as ‘acceptable’ depends on the specific business, but it makes sense to treat asset withdrawal as another aspect of strategic planning.
How you compare
Another way in which we can help, which you may not expect from an accountancy firm, is by providing market intelligence. We can produce reports that benchmark you against competitors based on industry, location, size, or a combination of these. Demonstrating that you compare favourably against competitors is another way of reassuring investors that your company is a safe bet and they will see a return on their investment.
To find out more about the types of funding currently available, and how to optimise your application, please contact our Corporate Services Team on 01245 495588