Author: Philip Murray
In the current economic climate, many small businesses are struggling to secure the external finance that they need to achieve their growth. If you want to understand better how to source finance from banks, venture capital firms, and others, then read on. Many people ask us, is it a good time to start up in business and raise finance and the fact is that there are undoubtedly more sources of funding for pre-start, start-up, growing and existing businesses than ever before.
Having had recent success in securing finance for a range of businesses in the North East, Phil Murray explains how to secure that all-important funding for your business and what not to do when engaging with funders.
Q: What are the key things for business owners to remember when seeking to raise finance?
Phil: The most basic of points is to match the source of finance with the purpose – you need to make sure the finance you’re getting is appropriate for what you need it for.
You should always try and match the period of your finance with the life of the asset you’re looking to cover. For instance, if a business is looking to take the next step up for the long-term, they should be looking to extend their equity base and not just borrow from the bank, so in that case you might look to grant bodies (e.g. Lets Grow, UK Steel, RDPE and Arch), private equity firms (e.g. Rivers Capital, North Star, IP Group and FW Capital) or investor angels.
On the other hand, if you’re looking at property, that’s a long-term asset, so you should make sure you’re getting a long-term loan – so for this you might look to a commercial funder. It’s about making sure the finance you get is suitable to your situation.
Q: What are the main obstacles for small businesses looking to raise finance at the moment?
Phil: I think the only barrier to a small business is trying to think a little bit higher; business owners need to realise that some of those alternative sources of finance that they might not think are aimed at them could in fact be suitable.
They also need to ensure they present themselves as a smart business – and smart businesses can be any size.
Q: How can businesses make themselves more attractive to funders?
Phil: It’s all in the story they tell to funders - and that’s not just about what you say, it’s about how you present yourself. For example, why don’t we use a comparison with dating!!! When you’re going out on a date you dress up in your best clothes and think about what you might say to make yourself sound good. This is what businesses need to do in a pitch, grant application and funding proposal. Your proposal to a funder should prove you’ve got the expertise and skills to run the business and you need to have examined the market to show that you know how you’re going to approach it and ensure a profitable future through sound decision making.
The feedback I get from a lot of funders is that this is where businesses typically let themselves down. They often don’t think through their proposal and will ask for money without a sound plan so in many cases what could be a good application and an excellent business idea gets knocked back because of the way they’re presented.
Q: What is the main risks businesses face when looking to raise finance?
Phil: The main risk is that the business doesn’t succeed, and business owners need to consider how much of their own assets are in jeopardy if that happens. Sadly, this is the same approach funders have; just because they can fund a number of businesses, that doesn’t mean they can afford to be a bit more gung-ho with whom they provide funding to. Propositions always need to show a good solid case for success. That’s not to say failure is bad – failure happens and some of the best entrepreneurs have a failure on their CV, but the business has to be a good proposition.
Another thing business owners need to think about is where their business is going and whether they’d be happy working with someone else. Often people start their own business because they don’t like to take orders, so having to go back to a position where they have to check with other people before they can do things if often a tricky step, but this isn’t so much a risk as a psychological consideration business owners need to face.
Q: Where can businesses turn for support and advice when it comes to raising finance?
Phil: I’m going to say exactly what you’d imagine at this point, but largely because it’s true: look to an accountant or another business adviser.
You’re there to run your business, not to lose sleep over accounts, bookkeeping and tax returns. If you can get an expert to help you with those things, you can get on with running your business; focus on what you’re good at and sleep well at night. Another thing is to ensure you seek the correct advice at the right time and don’t leave it too late. That’s an important tip both for businesses on the downward slope and those heading upward.
If you are interested in raising finance in the north east of England please complete our simple form and we will be able to tell you the available funds to help you on your journey.
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