27 August 2021

Raising Finance for Business – Options when looking for funding

Getting Your Business Ready For Finance

Trying to raise funds for your Business can be exciting and daunting in equal measure.

On the one hand, a successful application means business growth and a promising future, on the other, rejection can mean setbacks, leaving you feeling dejected and your business in limbo.

Raising Capital can take many forms, including straight forward bank loans through to private investment similar to Dragons Den. The choice can be overwhelming, but its pays to do some research and preparation before jumping in.

The British Business Bank has some useful tips on getting your business ready for raising capital for business, including a handy checklist.

In our latest blog the Clearview team takes a look at each of the stages, giving our advice to help you get your business ready for finance…

Stage 1:  Get clear on your growth ambitions.

Lenders such as angel investors and venture capitalists are out there, but they’ll only put money into trustworthy, highly profitable, long term ‘safe bets’. If you develop a growth ambition, whether that means expanding into new markets, new areas, or diversifying your current service range, you’ll find securing finance much easier.

Explain to potential lenders or investors what your idea for growth is and, perhaps more importantly, how it will positively impact your business. What are your financial projections? Do new markets offer greater margins? Maybe there is more potential volume overseas? Whatever your reasons for growth are, lenders will be looking to see where their money is going and what their investment will look like in the future.

Do You Have a Plan To Achieve It?

An idea is one thing, but how will you see it through to fruition? Finance is usually given on a few key factors, one being the strength of your business plan. If you’ve never done a business plan before, there are plenty of free templates available online to get you started.

Our advice is to start small! Don’t over think your plan or expect it to be perfect from the get go, instead, get your growth ideas down on paper, then develop some SMART goals (Specific, Measurable, Achievable, Realistic and Timed) that will help you get there.

Do You Know How Much Money You Need?

When applying for business loans or grants make sure you’re realistic about how much you will need, as well as the implications of repayments. It’s at this stage where a solid cash flow forecast can help, as you’ll be able to see, at a glance, whether your financing would cover you, if you put your growth plan in place.

Depending upon where you are applying for finance, don’t be afraid to ask for advice! Some funders have individual account managers, from financial backgrounds, with plenty of experience who will usually be able to assess the level of financing you’re applying for and whether it’s feasible for your business. Experienced and reputable finance brokers, regulated by the Financial Conduct Authority, are also a good source of knowledge.

Stage 2: Evaluating Your Business

Do You Know What Makes Your Business Special?

What makes your business different from your competitors? It doesn’t have to be something wildly original, but lenders will be looking at your business in isolation, as well as alongside your competitors, to assess whether, ultimately, it has enough about it to last.

There are plenty of resources available online to help you identify your key USP’s, as we’ve mentioned earlier, business plan templates are out there, which usually include resources like this too. If you’re struggling, a simple SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) could help.

Do You Understand Your Market?

Market analysis not only shows lenders that you’re competent in your industry, it also helps you identify opportunities or changes on the horizon.

There are various ways you could assess your market, such as PESTEL analysis or Porter’s Five Forces. However, you may find these are ‘overkill’ depending upon your industry and business type.

Do You Have an Honest Handle on Your Financials?

Lenders won’t be expecting you to be a fully fledged accountant, but they will demand that you’re in control of your business finances. As well as this, they’ll also want to see accounts from the last few years if available, to check the stability and feasibility of future plans.

Again, a cash flow forecast, profit and loss statement and balance sheet will provide everything lenders are looking for, as well as giving you a vital overview of your business.

Once you have your documents together, make use of them! Plot your ongoing performance against projected figures for a quick idea of whether things are going to plan.

Do You Understand Your Company Structure?

Understanding your business structure will show investors that you’re fully aware of any potential issues that could arise following a period of growth.

For example, self employed or partnership businesses need to consider registering for VAT once they reach a threshold. If your growth plans take your business over this threshold (currently set at £85,000) and you’ve failed to factor this into your plans, investors may be a little wary!

Are You Missing Any Key Skills?

Financing for growth in particular, whilst mostly positive, can cause a few problems, such as gaps in your work force or skill set. If your business is planning to move into new, overseas markets for example, do you, or your team have the knowledge required to communicate and transact effectively?

Don’t worry, your financing usually won’t hinge on these gaps, as long as you have acknowledged them in your business plan. Even better, provide solutions to these issues! This could include showing investors that you have researched courses or licenses that you may need, which, in turn, shows you’re also a responsible business owner.

STAGE 3: Understanding Equity Finance

So, how can a business raise finance?

There are various options from equity funding to business grants to funding circles and its important to have view as to which is your preferred option. Start your search for funding there but stay open minded as to what type of investment or potential funder may be the answer.

Have you considered what share of your business you will sell?

Not all financing is based on sharing equity, but if yours is, you’ll need to consider what percentage share of your business you’re willing to give away.

Obviously, if you’re working with an investment team, or angel investors (think Dragon’s Den) you’ll be entering into a negotiation. As the British Business Bank says, there are no hard and fast rules on the percentage share you should consider, but do have a figure in mind, based on your current valuation and how much you think your business would be worth if everything goes to plan.

Have you considered what kind of person you would like on your board?

If you have seen Dragons Den before, you’ll be familiar with the different characters who are willing to invest, as well as the diversity of their businesses. Successful businesses choose quality over quantity; finding the right investor for them based on their background and connections.

If you’re lucky enough to attract investors, be sure to do a little background research to see if their ideals fit with your business ethos and, in simple terms, whether you think you’ll be able to do business together!

STAGE 4: Taking action

Have You Spoken to Any Mentors Or Key Contacts?

Business mentors can offer impartial advice about your business, guiding you through the finance application process, as well as telling you truthfully whether your growth ambition is realistic.

As mentors usually come from a successful business background they often have good industry contacts, some of which could offer investment. Don’t be afraid to speak with your mentor and see if they know anyone who would consider investing in your business.

Have You Been Networking?

Networking is not only beneficial for your business by building connections and investment potential, it’s also great fun. Mixing with other business owners and investors is a great way of building your knowledge and may lead to previously hidden opportunities.

Be prepared to ‘pitch’ your business, as most networking events include a thirty second elevator pitch opportunity. That said, you’ll see the most return if you simply turn up, be yourself and be passionate about what you do!

Have You Done Your Research?

Armed with your business plan, cash flow forecast and profit and loss statements you’re ready to get out there and seek finance.

Research the different companies that are out there, including private and publicly funded options, as well as investors and try to find the solution that fits your business model the best. If you’re stuck, take a look at our Resources section, which includes links to different funding options, as well as the British Business Bank.

We hope our take on the stages of getting your business ready for finance help you understand exactly what it takes to make a successful application, or secure investment.

Clearview can help turn your big dream into reality. Try today for free.

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