business_link Looking for finance?

A common question in my work is “where can I find the finance to help grow my business”, or in some cases to survive in the short-term.

There is a common misconception that banks are not lending to businesses at the moment, the reality is that they are but the criteria are much tougher than for many years.

Risk management is the key factor to remember here, whilst there are government schemes coming in or in place that are aimed at freeing up of bank credit for lending, the banks need to be convinced that they are not unduly risking scarce money by lending to your business.

 

So, whilst there no guarantee of success, you will need to show that you are a viable, well managed business with a strong business case.

Here are some of the ingredients of a business case or plan.

Whatever the layout of the plan (many lenders have their own preferred templates) some important elements to emphasise:

The market viability of your product and services. You will need to show the reader that the market(s) that you are in, or intend to enter, has sufficient current or potential demand for your products or services.

Yours and your businesses market capabilities. For instance, that you can do what you say you can do; that you as the leader have the character and skills & knowledge to maintain or develop your viable business; that others around you, for instance your team if you have one, or however you are supported in delivering quality products / services to market, have the necessary competencies; that you have the skills to market your business effectively and that you have, or have access to, effective selling skills.

Your business is managed effectively. For instance:
 

  • Effective use of physical resources i.e. buildings, machinery where applicable;
  • Effective cost control and financial management.
  • Effective supply chain management.
  • Effective credit control.
  • Effective performance management: meaning that you set targets for your key performance indicators and that you have a process for regularly measuring and managing these so that you can take timely action to improve or correct as necessary.
  • Effective management of people: meaning that you have processes in place to get the best out of your staff and that you use any external advisers: your accountant, Business Link adviser or other business specialists intelligently to help you improve your business.

 

That you need the money. This sounds a bit odd given the context here, but you will need to show how the money you are asking for will benefit your business.

If the funding is distress funding, your challenge will be to convince your reader that the money loaned to you will lead to future gains. The cruel fact is that businesses do fail in times of recession and with their aversion to risk the banks will need to be convinced that they are not being asked to prop up a business that is ultimately doomed to failure.

Some well crunched numbers. A significant part of your case will be past financial records & accounts (for an established business) in addition to detailed forecasts. Most lenders will want to see the final accounts for the last year (and the two or three previous years), management accounts for the year to date and financial forecasts at least the next year.

You would usually be expected to have a detailed written narrative explaining past performance and your forecasts, also the reason for and timing of the funding.

Apart from viability and growth potential, your forecast needs to reassure lenders that you are asking for the right amount of money at the right time and that you are in a position to repay the loan. A test often applied is that the business can repay the loan from business activity rather than needing to use the loan itself to make repayments - there is usually some short term flexibility on this though.

You are likely to be asked for security: possibly business assets on which you have positive equity, but you may be asked to make a personal guarantee to secure the loan against a personal asset such as a proportion of the equity on your house.

At this point in my articles I often suggest that you call us for help on the subject in hand, but in the case of looking for funding it is usually essential to seek help and advice. Your accountant is an obvious port of call as is also the Business Link. Our service is free and the advisers are experienced in advising businesses on to write and present business plans.

Next month we will continue with this theme looking at some government schemes to help you raise debt finance, and at other sources of business funding.

That's all for this month.

Peter Mulhall
Business Adviser

Business Link - the place to go for business support

Online: www.businesslink.gov.uk

BUSINESS LINK ANSWERS YOUR QUESTIONS

business link

I met someone at a networking event recently and we have decided that our companies should work together. Do you think that business co-operation or collaboration is a good idea?

In short: you can't be good at everything, so yes it may well be a good idea.

However, let's look at a few of the things that would be involved.

What opportunities do we want to capitalise on?

You will need to identify an opportunity. This might be submitting a joint bid on a tender, or entering another market sector, or a particularly large customer to target which otherwise you would not have the credibility, skill or the resources to convert into a customer. You may not identify a specific opportunity at the early stage, but all parties should have a purpose for wanting to collaborate.

Choose your partners - but choose wisely!

The choice of collaborative partner is critical. Sometimes the criteria for partner selection are woefully inadequate and more suitable to choosing a golf partner than a business partner. Getting on with business partners is essential, but more is needed.

Taking it on trust

Trust; this is a difficult one as it only truly forms with experience. There will be issues possibly, for some, on intellectual property and the need for confidentiality and confidentiality agreements. But ultimately you will need to trust partners, sometimes with sensitive information about your own business as you proceed to collaborate. Not only that, you will need to trust that the other parties will fulfil their responsibilities on the projects or ventures that you undertake; there will inevitably be division of labour and you are unlikely to be in a position to supervise, hands-on, the things that others are accountable for.

Skills match

One of the big advantages of business collaboration is that you gain access to skills and competencies not available in your own business i.e. the other party excels in areas where you are weak and vice versa. This doesn't happen automatically; drawing up a skills map and skills-auditing each potential partner in order to match skills required with skills available is a crucial part of the preparation stage.

Cultural match

If you, as a sole trader, are wanting to collaborate with other sole traders, understanding the other party's style of doing business, vision, view of the world around them, their values and beliefs and behaviours will be important for effective collaboration.

If you are a larger business with staff and even possibly a management team, how you go about understanding each other's business culture will need a lot of careful thought. Each MD spending time at the other's business getting to know people and processes is a good place to start.

Process matching

This is about how you or your company actually works from end to end. How you sell, market your products & services, communicate internally, & externally, deal with suppliers, customer relationship management; how you actually make the products and provide the service, how you run your admin and finance functions etc. Don't assume that because your own business runs effectively and smoothly that there will be no difficulties when you collaborate with others even if they too have a smooth running business.

Legal & structural aspects

Collaborative agreements or even legal entities may be needed depending on the depth of the relationship and complexity of the work being undertaken. Seek specialist advice.

So yes it is definitely an option to consider...

It is widely accepted that business cooperation / collaboration is a valid strategy for growing a business. There are huge benefits to be had from utilising the synergy of complementary businesses as well as potential economies of scale.

...but don't go into it blindfolded

We have only scratched the surface and looked at a few aspects, but even so it should be clear that some form of due diligence is needed before any decision is made. Good advice is essential for each party separately and, if the idea progresses, possibly a facilitator, either internal, or external to mediate and to project manage the formation and early stages of the partnership or joint-venture.

A sobering thought is that the majority of collaborative business relationships fail. So do your groundwork first, be prepared to put the time and effort into making the partnership work and you stand a chance of being one of those businesses that succeed with collaborative cooperative relationships.

In a nutshell:

  • Identify the business opportunity
  • Choose your partner carefully
  • Spend time getting to know them and their business
  • Take advice
  • Be clear about the risks and benefits

If you think that collaborative co-operative working is a possible strategy for you but you're not sure where to start, talk to one of our business advisers.

That's all for this month.

Peter Mulhall
Business Adviser
tel: 07717 290309

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Business Link - the place to go for business support

Online: www.businesslink.gov.uk/east

 

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