How will you fund your business?

By Nik Askaroff

 All businesses face financial challenges at some stage in their life – and not always when they are in trouble. Usually the challenges are accompanied by a number of questions: How much do I need?  Where will I get it from? How much will it cost me? Etc etc.

More companies have money troubles coming out of a recession than ever they do going into one.  As sales increase, so do your stock, your debtors and, most likely, your staff costs.  These all have to be financed from somewhere and if you don’t have the money in the bank, then you are probably ‘under-capitalised’ and will need to go to a third party to get it.

Believe it or not, banks are still open for business but you need a properly prepared and thought-out proposal.  Security and guarantees may be necessary but the government-backed EFG loan may be an option.  If you are a rapidly-growing company, then invoice discounting may be the answer or even venture capital.  Private and corporate investors are out there, but you will need to have a solid track record, critical mass and give them a real return on their money if you are going to get their interest.  The South East is the most dynamic part of the UK and we have a huge number of financial institutions and private investors ready and willing to support and invest in viable businesses.

Start-ups will have difficulties as they face the greatest risks and often friends and family are the only solution, but many of today’s great businesses were initially financed in this way.  However, Enterprise Hubs and Business Links are there to help.

Fundamental to every funding case is to have a clear plan that shows how your business model works, what you are going to do, how long it will take you and what it is going to cost.  You must run your numbers, check them, get evidence to support them, and then run them again.  If you do this properly, and in advance, you will never have any problem getting finance for your business.

Two young lads recently came to see me having just started their own business importing and distributing a branded specialist product.  They had raised initial capital of £25k and were chasing down their first orders.  Sensibly, they had prepared forecasts for their business that showed them running out of money in month eight, assuming they hit their targets.  This was despite, at the same time, showing a £50k profit for the period. 

Luckily, they didn’t just move on and assume that this would work itself out, but started thinking about the finance they would need in the future.  They had a solid business plan and within six weeks we had facilities in place to support them for the next two years.  As always, proper planning prevents poor performance and they can now focus on the business rather than worrying about cash.

Let’s hope this recession is coming to an end, but if it is, do you know how you will finance your growth?

29 March 2010