SECTOR FOCUS: FINANCE SECTOR FOCUS
Investing in your business
- heads or tails? By Tim Jones, Director, Start Point Finance
Few businesses have a smooth transition from new start to stable cash positive company. Most have a turbulent ride from the kitchen table to the owned business park. Business owners have to make decisions on the way and the larger the company becomes the greater the working capital requirement. Some have the luxury of a
friendly bank manager to bounce off changing cash requirements but most owners have to navigate their own way. Deciding when to invest in your business and how to do it can clearly make the difference between success and failure. Human nature means that most
people put off dealing with potential future working capital deficits. This could be due to a lack of time to look ahead but most know when the trend is going in the wrong direction. Normally there
is a hope that clients will pay quicker or costs may be lower and that something or someone will come to the rescue. The good news is that
there is potential help out there and the commercial finance market offers many choices as investors look to get a return on their funds. Navigating your way through the options is not straightforward even if you are a professional but there are some principals that work regardless of size of business or capital requirement. Planning ahead so that you are
negotiating at your strongest possible point is absolutely key.
‘Raising funds
for investment should be a competitive process’
Asking for funds when you have little headroom reduces your options and can increase cost. Articulating the financial argument to satisfy the lenders affordability test through up to date management accounts and projections may seem time consuming (or expensive if using a third party) but they
will show their benefit in increasing
lender choice and lower cost. Using an accountant
or book keeper inevitably helps objectively assess company performance and potential in a language that the banks understand. They could also help crystallise the decision to invest or
not if the return is not sufficient or the risk of failure too high. If there is adverse information, it
is always best to address this up front and not when picked up by an underwriter. Where there has been a historical issue (even due to an error) an explanation and current status of the adverse will help a funder understand the situation and doesn’t preclude a positive answer to the credit application. Raising funds for investment
should be a competitive process and it is worth looking at a range of lenders. Merely defaulting to your current bank and expecting to get the best offer available in the market reduces the chances of achieving this. Lenders understand that it is a competitive process and will negotiate if challenged either by the applicant or a third party working on their behalf.
THE LATEST NEWS FROM THE REGION’S LEADING SECTORS
The Start Point Finance Team 38 Chamber Profile Winter 2019
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