Businesses large and small will generally encounter a time when financing makes sense. You may spot an opportunity, hit a rough patch or simply want to move forward aggressively. Regardless of the circumstances, your business must be positioned in such a way that finance is forthcoming. The following tips have been brought together with smaller and medium-sized businesses in mind, but the practicalities of them are relevant to anyone that operates a company. In following this guide, you give your business the best chance of success whether seeking out investment or loans and will give the prospective lender or investor all they need to know about your business in order to make an informed decision.
1. Know the Market
Among the intricacies of running a business is not only having a firm handle on your own day to day operations but also being confident in your knowledge of what is going on around you. The chances are that you know your own products, services and team members very well indeed. However, an investor or lender, while interested in each of these factors directly, will also base their decision on your knowledge of the market as a whole. It is crucial to remember that any form of business financing is a long-term prospect, and you need to demonstrate that your business will be able to meet future challenges regardless of current success.
2. Create or Update Your Business Plan
Smaller businesses often overlook the value of a business plan. Even if they have one in place, there are no guarantees that the plan has been addressed and updated in some time. To put it simply, you will not achieve the kind of financing you seek without an impressive, up to date business plan. This document is integral because it represents your plans, strengths and services in an easily digestible format that lenders and other stakeholders can peruse that their leisure.
3. Review the Plan with Each Application
You are fortunate if you find the perfect business finance at your first attempt. If you are turned down or are offered unfavourable terms, your business plan stands a good chance of having something to do with it. There may be fundamental issues with the business presented within the plan, but there could just as easily be something in the plan itself that could benefit from a change or update.
4. Be Clear on Cashflow
Finances are integral to the business plan but are important enough to be considered separately. Indeed, regardless of the quality of your staff or product, an investor or lender is most interested in the return on their money. If you can demonstrate that they will be paid back in full and on time with existing cash flow, obtaining finance becomes more of a no-brainer.
5. Work Out How Much You Need
When seeking out finance, it can be tempting to see it as free money and an opportunity to get as much as you can. However, a lender needs to be paid back in a timely fashion, and an investor will soon lose interest if they do not see results in a reasonable timeframe. It is crucial not to overstretch your demands and expectations, and you should always have a clear idea of what you need and why to seek out the best deal that will not jeopardise the future of the business in any way.
6. Present a Cohesive Statement
The bigger the numbers you work with, the more supporting information you will need to provide. It is important to provide a balanced view that matches up throughout the business plan, forecasts and spreadsheets. Any discrepancies will make it look like you lack attention to detail at best. At the worst, the prospective lender will wonder which numbers make sense and potentially feel like they have been plucked out of thin air.
7. Evidence Always Helps
Many business plans are based on expectations and predictions. These are great, but they are not as effective in convincing a lender or investor as cold, hard proof. If you are a newer business, dig out contracts and purchase orders. If you have been around for a while, attach invoices and receipts to verify that there is evidence behind your cashflow predictions and assumptions.
8. Demonstrate Debt Management
Smaller businesses tend not to have credit records or anything else along those lines, and much of what you can expect from an investor is based on trust. This works, but if you already have expenses, take the opportunity to demonstrate that you are fully capable of managing them. Contract purchases, equipment hires, and more all show genuine evidence that you consider longer-term expenses as part of the day to day running of the business.
9. Keep an Eye on the Exit Strategy
While financing and investment feel like a long-term proposition today, it is often relatively short-term in the grand scheme of things. As a business owner, you probably do not want a commitment to hang over you for any longer than it absolutely must. For loans, keep the end date in mind and plan around freeing up the repayments into your cashflow. If you go down the investment route, work out if there is a way to buy out the investor or reduce their holding in the future to return more of the business to your own management.
10. Be Selective
If you reach a point where you need finance, or there is no business left, then the chances of actually receiving it are slim. In most cases, you have the time and opportunity to say ‘no’, and you can use this to ensure that you get the kind of deal that matches up to your own expectations. Use any leverage you have for the good of the business and don’t rush into anything – avoid high interest rates or any predatory terms to guarantee the long-term success of your operation.