Finance for growth

2. Finance for growth

Having the right funding in place is vital for sustained growth. The 'Finding Finance' section looks at the various financing options available and the key things to think about when deciding which option in the most appropriate for your businesess.

These 8 questions are a useful guide to use when you are first considering how to finance your growth. Use these key questions to make sure you are presenting your business to potential funders in the best possible light.

What is my finance history with this funder?

Many businesses fail to raise finance because, in the past, they have not had a good dialogue with the funder (this is often their bank) about their finance needs.

Make sure you keep communication channels with your bank and other funders open and look for ways to improve relationships before applying for additional funding.

Is it the right time to seek financing?

Timing is very important. You have to be fully prepared when you approach funders, but equally must not leave it too late in the development process as this could jeopardise your plans.

Will the required financing be enough to meet the needs of the business?

Small business owners very often underestimate the amount of finance required to drive their business to the next level, and forecasts are often overly optimistic.

It can be good practice to build 3 sets of financial projections -  best case, most likely case and worst case scenarios. This way funders can see that you have thought carefully about what can be achieved.

Are the documents to support the financing request completed to high quality professional standards?

First impressions are as important when seeking finance as in other circumstances. You rarely get a second chance to present to that funding source again.

Make sure your documents are complete, sufficiently detailed, answer funders’ or investors’ questions, adequately explain the business, the finance required and what it will be used for, and identify the risks, and appropriate strategies for managing those risks.

If you are inexperienced in this area, it is well worthwhile getting professional assistance to assemble the information, and also to ask an outside third party to review and critique it before presenting it to potential funders.

Is there an experienced and competent management team in place that can deliver against the plan?

Most funders or investors look for an experienced and proven management team. Strengthen your team by including appropriate board members and associates or joint venture partners.

Are the right sources being approached?

Many small businesses waste a lot of time and effort looking for finance from the wrong sources. Seek advice before you start and make sure the sources you approach are appropriate for the amount of money being sought and the way you are planning to use it.

Remember too that all money is not equal. Some finance has added value through connection with the funder or investor and access to expertise, experience, a contact base and so on.

Have all opportunities to release cash from the balance sheet been explored?

There are a number of ways that you can realise cash from within the business – reduce your stock levels, sell and leaseback any fixed assets that you own, factor in your receivables or identify and eliminate any unnecessary expenses.

Make sure you have fully reviewed these internal options before seeking external assistance.

Is there a good cash management system in place?

Monitor your cash closely and make sure you do not spend more than you have available. It can be good practice to produce a rolling weekly cashflow to make sure you have your finger on the pulse. It is critical to make sure the business can afford the financing being sought.