There are numerous sources of finance available but actually securing it and ensuring it is the right source of finance can be a major challenge. The following aims to provide an overview of some of the sources and some of the considerations when raising finance.
The Business Plan
Preparing a solid business plan is the key to securing funding. It helps the lender or investor understand the visions and goals of the business and help them gauge the level of risk in their investment.
The information included in the business plan will depend on the target audience but the following should be included in each case:
- an executive summary – aim to grab attention of lenders and investors and cover the main points;
- details of the key people – responsibilities, skills and experience;
- market research – competitors and product placement in the market;
- marketing plan – how sales generated;
- financial information of last 3 years where available;
- financial forecasts of next 3 to 5 years – detail key assumptions;
- additional forecasts based on alternative scenarios such as fall in sales targets;
- cash flow forecast to determine the funding needed to sustain and grow the business;
- details of how debtors, creditors, stock and capital expenditure will be managed; and
- detail how potential lenders will get their money back or investors see the value in the business.
It is important to show how much of the existing owners money is committed to the business. Their willingness to risk enough of their own capital demonstrates their commitment and belief in the business.
To be ready for investment in may be beneficial to have some help from experienced advisers to get the information and knowledge to make the right choices. Mentorsme.co.uk is a mentoring gateway that links businesses to mentoring organisations across the UK to help find the mentor that suits the business, including offering specialist financial support.
ICAEW’s Business Advice Service (BAS) is a scheme offering a free advice session with an ICAEW-qualified chartered accountant. If interested please visit www.businessadviceservice.com to find the nearest office participating in the scheme.
GrowthAccelerator is a £200m government backed programme to provide business coaching from a business growth specialist including Winning Pitch, Oxford Innovation and Pera. It is tailored to meet the specific needs of the individual business and focuses on the following:
- Commercialising innovation
- Business development
- Access to finance
- Leadership and management
The right type of finance
This is dependent on many factors, there are pros and cons to all types of finance and it may be best to have a mixture. Before raising the finance it is important to answer the following:
- How much?
- What for (be specific)?
- When required?
- How long will it be needed?
Sources of finance to consider
- Friends and family
- Bank loan
- Community Development Finance Institutions
- Enterprise Finance Guarantee – Government backed scheme
- Equity finance (shares)
- Business Angel Co-Investment Fund
- Enterprise Investment Scheme
- Seed Enterprise Investment Scheme
- Venture Capital Trust Scheme
- Asset based lending
- Leasing vs buying
- Debt factoring
- Recourse factoring
- Invoice discounting
- Export factoring
- Supplier finance
- Mezzanine finance
As well as the above list of finance sources there is other help and support available, I would recommend obtaining a business adviser who can look at your specific circumstances to consider the right mix of financing options and help to get you in a position to be able to obtain it.