FINANCE AND THE ECONOMY


Accessing funding can help drive your business forward – but getting it right means considering a variety of strategic options. Julian Smith (pictured), Managing Director at Chamber patron The Alternative Board, Derby, assesses the bigger picture.


Crowdfunding, venture capital investment, business loans or the bank of mum and dad? The question of where business owners turn when wanting to access finance is becoming ever more diverse. A quick search on Google will alight upon as many as


ten straightforward routes to cash but all come with risks which could cause significant future disruption. So, how do businesses balance the risk and potential


reward of funding streams and come up with the golden fleece of sustainable growth? Firstly, never be lulled into not concentrating on cash flow, forecasts, debts and gross profit margins. Those who do always face the prospect of being bitten when they least expect to be. Therefore, any financial investment should be in tandem with key performance indicators to provide a quantitative measurement of company performance. Financial statements just aren’t enough. Key


performance indicators should be more “big picture,” taking into consideration personal vision and the company’s goals. A secondary benefit is to help educate board members about critical processes and results in the company. The more they know about the business, the better advisers they can be. Meanwhile, if a company is facing tough economic


times or is in sheer survival mode, it is vital to create a strategic plan before deciding upon which financial stream to seek. Businesses that are struggling economically often


need a course change to get through their economic struggles. The most obvious place to turn for financial help would traditionally have been a bank but business owners should make certain that they research the various types of loans before they sign up. Frustratingly, while banks say they are being more


proactive with regard to SMEs, their offerings are poorly advertised. The fact is that they have myriad options which are accompanied by different terms and interest rates. Sadly, gone are the days when local bank managers


were friends of the family but banks do have business specialists and fostering a good relationship with them will ensure the best deal for an individual business case. On the plus side, some banks offer low interest rates, depending on credit rating, but, as most business owners will know, the process of agreeing a deal with a bank can be very time-consuming and potentially frustrating. Of course, banks can be side-stepped and interest


rates can be even lower if business owners turn to parents, extended family or friends for support. This is most common when a company is in its infancy and is needing to prove itself in the market. Clearly, such loans are not mired in bureaucracy and


can be flexible. Depending on the agreement, it could also be a smart investment for those loaning the money. However, relationships can be damaged beyond repair if things go badly. Business owners will need to assess the strength of their bonds with family and friends and whether they would be risking jeopardising what they may cherish the most. In recent years, crowdfunding has become an


increasingly popular way for businesses to raise capital because it is low-cost and makes cash accessible. Its benefits are that it requires a very low investment, taps into a potentially large audience and investors are keen to have fun with their money. It also allows for small donations and plays to social media marketing where


‘If a company is facing tough economic times or is in sheer survival mode, it is vital to create a strategic plan before deciding upon which financial stream to seek’


crowdfunding schemes are popular. However, it only tends to work if the business concept


is simple enough for the layperson to understand. Complex concepts or even those with a long research and development cycle may put potential investors off. Crowdfunding has tended to be most successful with


projects which require capital investment of less than £100,000. Those needing greater funding will need to look at other avenues. Surprisingly few companies think of Government


grants when it comes to providing vital financial assistance but it could be a key factor to those in the arenas of innovation and research and development. Innovate UK runs grant-funding competitions that can


help develop an idea with potential grants of between £25,000 and £10m. Government also offers loans to SMEs which want to


carry out late-stage innovation projects with eligible companies able to borrow between £100,000 and £1m. There are also a number of initiatives which can help


businesses access international opportunities and partners. These include Horizon 2020, EUREKA Eurostars and the Newton Fund and are open to a range of organisation types and sizes. The only potential minus with Government support is


that there will be conditions to meet and the right kind of work must be undertaken. Business angels are similar to the panellists on TV’s


Dragons’ Den and tend to be wealthy individuals who provide funding in exchange for a share in a business. In common with the positive outcomes on Dragons’ Den, some investors work in groups, while others work on their own. Apart from their cash, angel investors will have experience and should be able to offer valuable business advice and guidance. However, business angel investment is not suitable for owners who want to retain 100% control of their business.


business network November 2018 51


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