In this series of blogs, I examine the vital issue of raising finance for owner managed businesses. However before you go dashing off to the bank in your best suit, expecting to be given a wad of cash, consider my blogs first and get in touch for a chat to talk through your finance requirements.
Consider the following:
Is Finance required at all?
You might find you can raise what you require from internal sources.
- chasing in your debts to release cash
- extending your payment terms with suppliers
- run down your stock levels
- timing your new project so it corresponds with a period of positive cash flow
Why is the finance required?
For what purpose is it required? Is it for the purchase of an asset? To increase the working capital of the business?
- Is it a necessity or merely a ‘would be nice to have…’
- Match the type of finance you obtain with the benefits that finance will bring.
- Hence, use short term funds for the purchase of a business laptop but longer term funds for the purchase of a commercial building.
Before you make an application to any provider you will need to be prepared.
- Why you need the finance as per the previous point.
- The exact amount you need
- Be clear about the expected benefits it will bring
- …and over what time period they will accrue
- How the business will meet the repayments
- Whether this application is likely to be an isolated event or whether additional funds will be required in the future
Do you need a business plan?
A well drawn up business plan could help you get the finance you need. However make sure it looks an impressive document and not the ‘back of a fag packet’
- The objectives and plans of the business
- the purpose of the funding
- the business ownership and history
- management and responsibilities
- products and market share
- sales plan and strategy
- the financial position of the company with cash flow forecasts and previous accounts
Your accountant can help you draft this document to make sure it looks the best it can.
Be aware of the costs of the finance you take out. These can take the form of financial costs:
- Interest charges
- Setting up fees
- Exit or early repayment fees
- Additional charges (for example excessive mileage charges on a vehicle lease)
…and non financial costs:
- Giving up stock in your company for angel investment
- The company’s credit rating
- Personal guarantees or other forms of security that you might have to give
The next step – what sort of finance to take out?
You’ve got your business plan. You’re clear about why you need the finance and how much you need. So, what type of finance is right for you?
In the next blogs in this series, I look at the different types and gives pros and cons for each.
‘Lovely Jubbly’ as Del Boy might say…
Until next time…
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