Funding for growth

If only the government and high street banks understood the challenges faced by small and medium sized enterprises (SMEs) in running their businesses! The sad fact is that this vital sector of the British economy is either overlooked entirely or offered finance at exorbitant and unacceptable rates. This can have a negative effect on the growth of a business.

Business challenges nearly always boil down to issues with cash flow. Businesses may have to fund new orders due to debtors paying late. Import firms may have a need to pay for vital imports of stock. Changes in modern practices and computing means businesses might have to buy new technology.

Financial challenges include keeping acceptable credit terms with suppliers or having the ability to take advantage of volume discounts to compete in the market. Taxation is a certainty and firms will have to pay VAT or PAYE on time, causing a burden on cashflow at certain times of the year.

Businesses may also be seeking to introduce new products or services, increase stock on a seasonal basis, acquire a new business or stave off a pending decline. The list is endless.

If lending was increased to the SME sector not only would these challenges disappear but valuable jobs and growth could be created. It is a win/win situation.

It is very important for management teams to review their funding needs at least once a quarter. They need to be continually aware of any cash flow difficulties that may be on the horizon - and of the solutions that are available to them.

Available funding solutions will differ depending on the company’s stage of development when the funding need arises. Not all funding solutions will be suitable or even available to all companies.

If the management teams are not taken by surprise, suitable funding solutions need not be hard to arrange. If they are taken by surprise, or are not prepared and need to go 'cap in hand' to the bank, they are then more likely to be offered the wrong solution at inflated prices with onerous terms and conditions attached. That is if they are offered funding at all.

The key to successfully obtaining funding is to be aware of your needs well in advance. Thoroughly prepare the ground first. Research the marketplace and then make the funders compete for your business, just like any other supplier that you deal with. Money is just like any other product that you buy.

Not all funding sources will be available to you. Funding options will depend on what stage of growth your company is experiencing. It is important to understand the stages that many companies will experience at some time during their life.

Some businesses will experience all the stages and some just a few. It is also possible that a number will only experience a couple of stages, going straight from concept to collapse.

The major stages of growth are as follows:

  • Concept
  • Start-up
  • Growth
  • Consolidation
  • Acquisitions
  • Management buy-outs (MBOs)
  • Management buy-ins (MBIs)
  • Decline
  • Failure
  • Phoenix

Now that we have identified the stages of growth, we need to identify the available funding options. Once we have done that we can discuss which options go with which stages of growth.

Remember that funding seldom comes from a single source. In most cases, it is a mixture of different types of funding. It should also be noted that risk taking is not in the nature of funding providers. In the current marketplace, personal guarantees for any type of debt funding will be required.

Call Richard Olsen today on 0203 327 0567 for advice on funding for growth and what alternative funding options are available to your business.

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