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Top ten tips for SMEs seeking equity funding

002Dave Furlong

Dave Furlong
Finance

Posted on: 04/10/2017

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Given the wide-ranging opportunities afforded by the vibrant and entrepreneurial North, SME’s across the region require increased support and flexible investment in order to achieve their potential. There are a growing number of products in the market place, so if you’re looking to raise money, there are currently more alternatives than ever before. For a business owner this evolving market may prove daunting, therefore obtaining good advice to locate the right funder and ensure the business is investment ready is vital when funding the growth of your business

1) Do your homework first

Before putting pen to paper on your business plan, it’s worthwhile doing some background research on your market and the opportunities it presents. You need to demonstrate that your business has the potential to make sales and generate cash. When analysing your market ask yourself

2) First Impressions Count

It is important that a business plan is realistic and reflects the business’s history, current trading and strategy going forward. Funders receive lots of plans where having read the document you still have little understanding of what the business does and the value it creates for its customers. It’s worthwhile asking a friend who is not involved in the business to read the report and offer their thoughts. Before sending a plan anywhere make sure its proof read – we see many business plans with basic spelling errors and inconsistent formatting – remember the plan you send if our first contact with your company.

3) Financial Accounts and Forecasts matter

Alongside your business plan, any funder will wish to see how your business has performed to date and how you forecast performance going forward. As much emphasis and detail needs to go into these as the business plan.
Make sure your assumptions are realistic, and build in some contingency. If your business does not have a finance function or experience in accounts, employing an advisor can help ensure your forecasts are up to scratch for funder scrutiny.

4) Understand your options

There are many different options for SME funding in the market, so ensure you know your options. There are a large number of Growth Hubs and Incubators in the region, providing help and advice to getting to the point where the company is investment ready and who can put you in touch with the many different sources of potential debt or equity funding, depending on the needs of your business.

5) Understand your timescales

The length of time it takes to put various forms of finance in place can very significantly. For instance, bank or mainstream funding usually takes a number of weeks to complete depending on the type of loan being provided, whereas equity funding can potentially take longer. It’s important to agree the timescales with your funder up front to ensure the process goes as smoothly as possible.

6) Engage with advisors

It may seem like a further cost to a growing SME business, but the benefits of engaging with a business advisor can ultimately save significant time and money in sourcing the best deal for your company. Remember, the time spent on seeking funding is time not spent running your business, so any help and advice can be invaluable in the long run.

7) Maintain dialogue

Once engaged with a provider, make sure you keep in contact and inform them of your decisions. This will help them progress your application as quickly as possible. If you decide not to go ahead with any agreed funding, let the funder know – this may help any future applications should your circumstances or requirements change in future.

8) Be upfront with your business history

Every business is unique, though all come with both challenges and opportunities. By being upfront with a funder about the business’s history and any issues faced, you are more likely to get a positive outcome. It is far better to talk through any issues faced by the business and lessons learned upfront, allowing the lender to consider those issues as part of their process.

9) Assess the whole funding offer

As well as the amount of funding available and the overall pricing, there are other factors to consider including flexibility, the repayment term, ability to provide future funding and security requirements. Make sure you look at the whole package before deciding on a particular route.

10) Make sure the funding works for your business

Getting the right funding package is crucial to any business looking to grow. Once you have received an offer from a funder, take a step back and ensure it works for your business. Could your business be better served with a higher or lower level of funding? Do the terms make sense for your business? Ultimately a well-structured funding package should give your business the cash headroom to grow, but get it wrong and it could restrict growth, so it is a key decision for your business. Hopefully these tips will ensure you end up with a sensible solution to your funding needs!

About the author…

Dave Furlong, Investment Director

Dave is responsible for the execution of new investments for the NPIF Equity Finance fund, and also works with portfolio companies across the region. He joined Maven in 2017 from Infinity Debt Capital Management LLP, where he oversaw the launch and overall management of a new SME/mid-market regional debt fund and originated new private equity opportunities. Previously, Dave held senior positions at HSBC across London and the UK regions, and ultimately ran the Leveraged Finance business in the North West. Dave completed an MBA at the University of Liverpool in 2013.

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