At some stage in the business life cycle, there will be a need for finance. If your income against outgoings doesn’t create a positive cash flow, or if you don’t have sufficient reserves, you’ll need to find funding outside the business.
Is your business ready for this big step?
My background (30 years in finance and now a few years as a business coach) mean that I’ve asked that question quite a few times. Let’s break it down into…more questions:
Is your business strong enough for you to apply for a loan, and if it is how much income is needed to repay the loan? How will you generate that income if you are not doing so already? Is your business paying you a satisfactory living income? If not, is it sensible to consider growth if your business isn’t yet supporting you? Will your business generate sufficient interest from potential equity investors? What is it about your business that they will like? Future income? A new idea that disrupts a market? How much of your business would you be prepared to give to an investor?
Look carefully at your most recent financial statements and review the working capital situation as well as income and expenses. What are your financial statements telling you? Sit down with your accountant and spend some time finding out the true state of your business finance. Talk with a business coach or consultant who is objective about your business. Ask your bank to run through their criteria and give you their opinion.
If you all agree that your business is ready for growth investment – but remember: you are the main decision-maker – you need evidence to show potential funders, or investors.
You need to ask for enough – too little and you won’t achieve what you want, too much and it’s unlikely anyone will offer you money. Decide how much money you need to grow. Decide whether you are asking for equity funding – offering a share in the business for investment – or debt funding – a loan arrangement that your business pays back. If you are going forward for direct equity investment, it’s a good idea to seek advice from a business adviser and a lawyer. If you’re unsure which road to travel, speak to an advisor.
Next, make sure the plans you have for your business growth are realistic and based on solid figures and projections. Plans can of course include your ideas for the business but they must also consist of documents. You will need a Business Plan, an Investment Plan, an Executive Summary, a Finance Plan. All of these can be drawn up in partnership with the right people. You may need recent bank statements, and most recent accounts.
As well as all these, you will need patience, and lots of it, as raising finance can take time. If someone is giving your business money, they will need to know not only that their investment is safe but also that it will give them income.
Look out for my next article discussing the various places to raise finance. There are many and it can be confusing. As with all business-related matters it is best to speak to an expert advisor – your bank, your accountant, and a business advisory company.
Mick Sims is a business coach at Advantage Business Partnerships and has worked with many businesses to successfully secure growth funding.