Five things you need to get right when preparing for funding

Five things you need to get right when preparing for funding

Five things you need to get right when preparing for funding

As Jon Kandiah, the Scaleup Strategist will tell you, scaling up is never easy to do. You have the difficult task of increasing profitability whilst adapting the business model to make it sustainable. It’s one of the primary reasons why scaling businesses get a scale-up coach involved.

But of course, you can’t increase revenue and profitability without looking very closely at your business finances. It’s highly likely you will require funding at some stage to achieve your well-planned goals, targets and objectives.

Obtaining finance can sometimes be tricky to say the least. But it can be especially hard to get, what I call, the “right” finance. Finance that will help your business thrive not restrict it. It takes patience and requires close analysis. And as many will testify, if you fail to get the right investors you will never realise the dream.

 

There’s plenty you can do to ensure you are in a good position to find the right backers and make the right funding decisions. Here are my top five tips for success:

  1. PLAN AHEAD

Business owners should have a business plan, I prefer a short-term business plan, usually a year. Nowadays the economic environment is constantly changing, and trading moves at a fast pace so planning for the longer term can be both difficult and inefficient.

There are two things I hone in on when I analyse investing in an asset or a project: solid forecasting and sound Net Present Value analysis. These tell me a lot about the people running the business as much as they do about how profitable the business will be, and therefore what return you could achieve on your investment. You need to be all over these numbers.

  1. UNDERSTAND YOUR FINANCIALS

This is a crucial part of the planning and decision-making process. A careful analysis of your financial statements – that’s balance sheet, and profit and loss - and your cash flow forecast is essential to be able to conclude two major points: Firstly do you need finance? And most importantly, how much funding do you need?

  1. GET HELP FROM AN EXPERIENCED FUNDING EXPERT

You will not believe how many business owners I speak to who don’t understand their financials. They are excellent at what they do but they have neglected to check that the numbers really do stack up and the financial analysis is correct. Your accountant can help you prepare for funding so do use them. You should also look for help from  qualified, experienced brokers who will understand your financials and your project, but beware of the ones that just want to make commission

The question you need to be asking is ‘have I calculated the right sum?’. In essence, you need to avoid falling into the trap of thinking you need £50k, asking for and getting £50k and then finding you actually needed £350K and are now fighting for cash. The consequences of getting it wrong can be dire.

  1. THE BANK SAYS “NO”

Unfortunately, this happens quite often.  I am not saying that banks don’t lend, because they will. But you might have gone to the wrong lender to support your business. A bank might not be the right option but because it’s the obvious one it’s natural to go and ask for help. There are lots of other avenues to explore and the right advice from a professional broker can be invaluable to help you navigate the wide range of lenders with different appetites and products that will be ready and right to help your business.

  1. A final and crucial tip: always leave money behind in your business.

Fast forward to times when you are growing and looking for more finance. You have to show you are safe hands. You must therefore focus on the net worth or ‘Shareholder’s funds’ in your financial statements.  Essentially it’s how much your business is worth. Having a positive net worth, especially one that is growing year by year, will help you every time you will want to obtain more finance for your business.

All lenders take a very close look at this figure as it gives them a clear picture of the strength of the business and more importantly provides a sneak preview of how the business is managed.

I’m a big believer that it’s by carefully managing these indicators that you can stay positive as you scale your business.

Carlos Gonzalez
Carlos Gonzalez
carlos.gonzalez@creativecapitaluk.com

Carlos Gonzalez is a funding expert with 25 years’ experience in advising businesses on how to obtain the right finance and products, gained through his career in various financial organisations in the UK and abroad. Presently Carlos is an independent business development consultant at Creative Capital for invoice finance and trade and has financial director advisory roles in a number of scaling SME’s around London.