Raising Finance is generally the most difficult task for start-ups and SMEs (“small medium enterprises”) capable of scale-up and significant growth.
This is despite the fact that successive governments, the major banks and other lending institutions and the introduction of new initiatives, especially in the raising of equity, as opposed to loan finance, have shown positive encouragement in this area.
So where do you start when you wish to raise finance for your business? Firstly, you need independent and committed advice and assistance from someone or an organisation that understands the intricacies and vagaries of raising finance for a start-up or small business.
To find the appropriate advisor, you need a recommendation from someone who has been through the process, or from a respected organisation such as the Institute of Chartered Accountants, or from the Local Enterprise Partnership (“LEP”).
Your advisor will explain the pros and cons of the numerous and complex different types of finance and which one is most suitable for your business. Frustratingly, there is no “one size fits all” and the advisor will listen to what you believe are your requirements, especially in the area of acceptable risk, and then explain the art of the possible.
This discussion will cover the suitability of loan funding, and the guarantees you are likely to have to provide to a lender, as against equity funding, where you release part of your business in exchange for an investment, but where usually all the risk is borne by the equity investor.
You will find there are many variations of both loan funding and equity funding and sometimes the best option is a mix of the two types of finance.
Once you have absorbed the nuances of the different types of finance and how they relate to your business, the next stage, guided by your advisor, is to prepare a Business Plan and detailed financial forecasts. This is a subject in itself, but once prepared – which could take weeks of hard work, deep thought, and much angst! – you will be in a position to decide how much you need to raise and, broadly, the type or types of funding you require.
After this decision has been taken, the final piece of the jigsaw – an appropriate explanatory and reasoned paragraph in the Executive Summary – will be inserted and you will be ready to start the next part of the journey, namely approaching funders.
Ideally, your advisor will have a number of contacts amongst the types of funders you have decided to approach and the advisor should make “warm introductions” by a telephone conversation or, if the advisor knows the contact well, by an informal meeting, before arranging to send on the Business Plan and forecasts. This will be followed up by a meeting with the potential funder, you and the advisor, where you may have to make a presentation covering your business case and justifying your request for funding.
Then you need to keep your fingers crossed!
Seek references and always seek professional advice from your accountant, business adviser or mentor – find out what recent experience they have of raising finance and be clear on your own needs.
Thoughts on raising finance from Yorkshire Powerhouse
Now you’ve read our article on Raising Finance – have you any more questions?
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