With the traditional route – your bank manager – less likely to lead to success than in the past, how do you approach the search for funds?
The first thing to say is that start-ups are a whole different ball game, and for the purposes of this blog, I am talking to owners of established businesses – i.e. with some track record of profitable trading.
Establish your funding need:
So, if you are an established business, what you need to do first is work out:
• WHY do I need funding?
• WHEN do I need funding?
• HOW MUCH do I need?
• HOW LONG do I need it for?
These steps can seem overwhelming to many business owners, who have more than enough on their plates running day to day operations; however, taken step by step they need not be difficult and, surprisingly enough, are largely covered by the preparation of a business plan. You should be able to do much of this on your own as it is a description of what you want to do with your business – and there are any number of model business plan layouts available on the internet – but the bit with which many will need assistance is turning the narrative into the numbers giving answers to the how much and how long questions above.
Establish the type of funding that is appropriate:
• Can I get a grant?
• Should I find additional investors?
• Will a term loan work?
• Can I get a short term variable loan (it’s called an overdraft!)
• Can I use assets or debtors to secure a facility?
There is again resource available to help you establish this yourself, but there is no doubt that access to someone who already has the knowledge will speed up the process. And the best result may not be cut and dried – an ideal solution might easily involve a combination of two or more of the types.
• for early stage – never forget friends & family,
• can you sweat your assets better? – can you improve systems to get your customers to make payment earlier?
• Business Angels can help at any stage and will add experience.
• “Peer to peer” or “Crowd funding” are a recent innovation
• Institutions (Venture Capital, Finance Houses and even Banks,)
This question may be best answered by considering what else you need to help your business. If the funding is needed for a very clear business purpose which is within your capacity to deliver but for the finance, go for the cheapest and least intrusive source of funding; but if you think you may need assistance in achieving your goals, then consider the angel route, as business angels generally expect to be involved in the business and will give the benefit of their experience in some sort of mentoring capacity.
And your preparation for the conversation with the potential funder needs:
• a comprehensive business plan (as mentioned above), and
• a well-rehearsed and convincing presentation.
I made a slightly jokey reference to “Dragons Den” in a recent blog about funding, but to be honest, if you are thinking of going down the angel route, that would be a good model to hold to in terms of preparation; business angels may not play to the camera in the way that the Dragons do, and would hopefully not be quite so rude, but they do need to understand your business proposition quickly and clearly!
It used to be simple – go to your bank manager and he would guide you through the necessary steps if he thought the proposition was supportable; he needed far less in terms of forecasts etc., as he made his decision largely on his understanding of your business. It’s more complex now, but there are actually many more routes to funding, even if they do require much more preparation.
And amazingly enough, the preparation of a business plan will almost certainly give rise to significant benefits for your business, even if you don’t use it for fund raising!
Of which more at another time.