Webinar review: Securing finance to set up or scale up

  • 27 Apr 2022

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Most small businesses will need to access funding to help them evolve, whether that’s to set up in the first place or to scale up for growth.

A recent First Voice webinar, run in partnership with Dell Technologies, outlined what small business owners need to know about their options and how to go about putting themselves in the best position to attract finance. Some of the main messages are summarised below:

Understand the different options

Different types of finance will be suited to businesses at different stages, ranging from personal loans to crowdfunding, angel investment or even venture capital funding.  

 

“You have to establish why you’re looking for investment because not every investment type is right for every business,” says Leitha Matz, CPO and co-founder, Fin Marie. “A lot of people hear about venture capital but once you get on that track you don’t get off it.” This type of finance tends to be more suited to businesses that have the potential to become “billion-dollar” companies, she adds, and investors will expect to see rapid growth.

It’s useful to think about the end of the story, says Ms Matz. “If you’re ultimately looking for an acquisition, then maybe the funding you’re looking for is to join an incubator with a larger company,” she says. “Something like equity crowdfunding could be good for a consumer brand but it could complicate later funding rounds.” Grants, seed funding through angels or friends and family, and business loans are often more appropriate for early-stage firms, she says.

Adrian Innes, Chief Revenue Officer at Finpoint, which provides the FSB Funding platform, points out there is a dichotomy between equity and debt, and which is most suitable depends on the stage a company is at. “If you’re looking at equity, you need to think about whether you want to go through an Enterprise Investment Scheme or whether you’re looking for an investor to have part-control of your business.”

The British Business Bank has recently extended the Start Up Loans programme to companies that are within three years of starting up rather than two, he adds, with the ability for firms set up within five years to top up a loan, which could prove attractive to some early-stage firms seeking a debt option.

Identify if you’re ready to grow

“If you have more demand than you can meet then it’s time to scale,” says Ms Matz. “That’s the ideal scenario for an investor because it’s a proven product/market fit.” Another scenario would be if you have something in place – such as new technology – which means the business is likely to rapidly win more customers, she adds.

The cost of any funding will depend on factors such as the confidence investors have in the business, whether the business is currently making revenue, the size of the customer base and the value of any assets such as property or IP, says Ms Matz. “This is the negotiation you have with lenders, which can make the price more or less for you,” she says.

 

It’s important, too, not to underestimate the amount of time it can take to raise finance, she adds. “You need to budget for around nine months, so make sure you’re able to get through that period comfortably,” she says. “You don’t want to get to the end of your runway during that process.”

Stage funding can help businesses borrow money over a longer period of time, add Innes, which can help ensure the money is there at the right time in a company’s journey.

What investors will look for

“It’s all about the story and the business plan,” says Mr Innes. “Funders will look at financial acumen, business acumen and personal acumen, and the skills you have to drive the business forward to make it profitable.” Previous sector expertise is vital to be credible, he adds.

Investors will also want to know that any business owner has done their homework. “The biggest issue I find in relation to business planning and cash flow forecasts is that directors don’t know the answers to the methodology of the projected turnover,” he says. Often this has been done by an accountant or finance director, he adds, rather than the owner or director.

“The first question I ask most businesses is ‘what’s your break-even?’,” he adds. “You should know what your outgoings are, and why you need the money. Businesses often know they need the money but they don’t know where the capital is tied up on the balance sheet.” FSB Funding can help here, he adds, negotiating with funders on behalf of the business.

 

It’s important, too, to know exactly what you need the money for, adds Ms Matz, which will also help to determine the amount, while Mr Innes makes the point that any equity stake will require a company valuation that can stand up to scrutiny.

To access the on-demand recording of the webinar please click here

Dell Technologies offers small business owners a wide range of financing options to help spread the cost of new technology, ensuring you can access innovation while remaining in control of your cash flow. To find out more about these options, click here

 

 

 

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