Throughout life, personally and within business, there are many times and situations where there is a requirement to raise money. The reasons and source of funds may differ accordingly, but within business, an initial opportunity of raising funds for owner managers will often be their best chance. Watch our BrighterThinking animation with a manufacturing spin which covers the requirements needed towards successfully funding business growth.
Obtaining the right capital
There is a general lack of knowledge and scepticism amongst SME’s (particularly owner managed or family run businesses) when considering fund raising, especially that of equity funding. Where external funding is sought, a bank loan is most frequently the source but there are a myriad of other sources to consider including asset backed lending, grant funding and even borrowing from family and friends and it is important that you identify the right source for you.
Whether business owners need to raise finance for a new business or the expansion of an existing one, obtaining the right capital for the right price is important. Factors are varied, but the mix of debt and equity funding and the impact it has on the business and the future cash flow is important.
Planning is key
Raising finance to fund growth requires careful planning although what is required varies from one business to another as each will have a different vision, goals, strategy and structure. There isn’t a one size fits all approach and it is generally wise to seek financing from a number of sources as this will give you greater flexibility in the long term.
Furthermore, you should take a close look at how much you think you will need as it is very difficult to go back a second time and ask for more. If you are looking to grow your business and are unsure of how to tackle it, here’s what you need to consider.
What is involved in the planning process?
Early planning is essential and the process and discipline of doing so should not only ensure that the rationale for finance raising and the amount to be raised is clearly identified. Also the subsequent processes through approach, negotiation, credit approval and documentation are more straightforward and cost effective.
“Effective tax planning can be a valuable tool in the funding process and taking advantage of reliefs such as R&D tax reliefs or capital allowances can help reduce borrowing requirements and assist with servicing the finance and we work with our clients to implement commercially effective strategies”
Andrew England – Menzies Partner and manufacturing specialist
Planning will also assist in articulating and proving the business case and should include the following:
- Outline as to what funding is sought and for what purpose, explaining the impact on the business (i.e. where it will take the business as a result) and how this fits with the desired strategy and direction of the business.
- Financial forecasts, (ideally fully integrated on a monthly basis comprising profit and loss/cash flow and balance sheets) with full notes and assumptions outlining the key underlying components within the model.
Quality checking is essential
It is advisable to review and discuss the planning process with a trusted and experienced third party to objectively test the purpose and level of finance sought. The review should also provide some constructive and robust questioning to ensure that the thinking and overall proposition makes sense and will stand up to subsequent scrutiny. The third party review can often not only give comfort and quality assurance but also ensures:
- The securing of best appetite to progress by financiers.
- The easing of processes through credit approval.
- An enhancement of the amount of finance available.
- A lowering of the cost of borrowing.
- A lessening of the cost and impact of due diligence.
Hear from our clients
“Menzies provided us with a clear view on the working capital requirements of the business. We have been so impressed with the level of service Menzies have provided us and we look forward to continuing our relationship with Menzies in the future.”
How we can help
- We work in partnership with you to ensure that your plans have the best chance of success
- We identify ways to reduce the cost of investment increasing returns
- We help claim tax reliefs for innovation and investment
- We can introduce appropriate contacts to assist with the funding
To find out more about improving working capital management and funding new product development, please contact Menzies manufacturing advisors: