The UK is a great place to start a business, but can you access the finance you need to grow? Denise Friend, partner and founder of Friend Partnership offers some sage advice to current and would-be entrepreneurs.
The most important point to note in any growing business is that cash is king. Your accounts may be showing a healthy profit but if the cash isn’t there, you will struggle to cover the costs of the new machinery, the new people or the marketing required to grow your business.
When we advise businesses on financing their growth, we encourage them to consider five key areas:
Address your finances from the outset and make sure you have a sound and coherent business plan. This should set out why set out why people should lend you the finance, what you need it for, and how you plan to repay it.
Ensure you build in sufficient headroom for working capital in case there is a hiccup. This involves preparing sensible forecasts and then flexing them for different scenarios or ‘slippage’. For example, how would your cashflow be affected if you don’t get the forecasted sales or a customer is slow to pay? Your accountant will be able to help you with this.
If you are a new or early stage business applying for an overdraft or business loan, you should expect the bank to ask for a personal guarantee. The merits of this is a debate for another time but the banks are generally quite firm on the matter. You can however negotiate with the bank to set the guarantee at a fixed amount for fixed period, with criteria to release it based on your business meeting certain performance criteria.
Get the right sort of finance for each area of the business. For example, vehicles should be leased not bought, and asset finance used for plant and machinery. Key to this is making sure that the finance matches the expected useful life.
Consider all forms of funding. Invoice discounting can be a great form of finance as it is linked to the growth of your business and generally doesn’t require a personal guarantee. It also worth keeping an eye out for business growth grants through your Local Enterprise Partnerships and Innovate UK but be aware that these can take a long time so are not always suitable for businesses that are looking to grow in a hurry!