Having the right funding in place is vital for sustained growth.
In the Raising Money for Growth module we looked at the various financing options available
and how to match your approach to different funders to increase your chances of success.
Revisit that module to remind yourself of exactly what’s required when you’re seeking
external finance.
And use these 8 key questions to guide you and make sure you’re presenting your business
to potential funders in the best possible light.
First ask yourself, what is my finance history with this funder?
Many businesses fail to raise finance because, in the past, they haven’t had a good dialogue
with the funder 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.
The second area that’s important to consider is timing.
Is it the right time to be seeking finance?
You have to be fully prepared when you approach funders, but equally mustn’t leave it too
late in the development process as this could jeopardise your plans.
Next consider whether the required financing will 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 three sets of financial projections - a best case scenario,
most likely case scenario and worst case scenario.
This way funders can see that you have thought carefully about what can be achieved.
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.
So the fourth area to check out is to make sure the documents supporting your finance
request are completed to the highest quality professional standards.
If you’re inexperienced in this area, it’s 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.
Next, make sure you demonstrate that there’s an experienced and competent management team
in place that can deliver against the plan.
This is critical for most funders or investors.
Strengthen your team by including appropriate board members and associates or joint venture
partners.
The next thing to consider is whether the right sources are 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’re 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.
The seventh question to ask yourself is whether all opportunities to release cash from the
balance sheet have been explored.
You can realise cash from within the business by reducing stock levels, selling and leasing-back
any fixed assets that you own, ensuring outstanding monies owed to the business are collected
or identifying and eliminating any unnecessary expenses.
Make sure you’ve fully reviewed these internal options before seeking external assistance.
And finally, have you got a good cash management system in place?
Monitor your cash closely and make sure you don’t spend more than you have available.
It can be good practice to produce a regular weekly cashflow review to make sure you are
fully up-to-date.
It’s critical to make sure the business can afford the financing being sought.
These 8 questions are a useful guide when you’re first considering how to finance
growth.
Use them to make sure you present your business in the best possible light.