Thinking About Raising Finance?
Here Are Some Things To Think About First
Having spent over 30 years in the financial services sector, I have worked with many clients requiring finance for their businesses and been on the other side of the desk when raising funds for my own businesses. Whilst the types of finance being sought will all have their own individual requirements, I do think there are some common areas that need to be addressed, which are relevant in any application or pitch. Here are some suggestions for you to consider:
How much? What for? When?
Before any approach to a finance provider, get thinking about this. Too many businesses think they need money, but are unable to quantify the amount required, explain what the money is required for and when it is required. The answers to these questions will have a significant bearing on which types of finance are appropriate. Some options will have minimum and maximum amounts of borrowing, others will only provide finance for specific purposes, such as the purchase of capital items. Other types of funding can take a long time to apply for, so completely inappropriate where time is an issue. I don’t think I have ever seen finance raised for a project, where the applicant cannot explain what the money is required for and certainly never where the amount is not specified.
You and the team
Any person or organisation providing finance to a business will want to know about the individual running the business. Sometimes this can be the business owner himself or in other larger business this could be the key members of the management team. Financiers need convincing about the background and experience of these individuals and to feel confident they have the skills, expertise and capacity to run and grow the business. I think this is particularly so when businesses are seeking business angel, or any form of equity investment. Remember, “people buy off people they like.” This is also true of investors and those responsible for lending money.
What does your business do?
Gosh this sounds like an easy question to answer! However, for me, I see too many businesses who cannot get this message across, simply and quickly. This is vital. Any finance provider will want to understand what your business does. Clearly, you will know this, but you must work on providing a description that someone outside your business can understand. Once you have this, try testing it on friend and family, that do not know what you do and ask them for their opinions. Please bear in mind that the person looking at your finance application or bid, will not be an expert in your field. Recently, I spoke to a wealthy individual who has invested in Cornish businesses. He tells me that if he does not understand this at an early stage, he walks away. “If I don’t understand – what chance have the customers got?” was his parting shot.
Problem and Solution
I would like you to think about your business activity or proposition in terms of problem and solution. Rather than describing your product or service in brochure style detail, (you should already have got this message across in the item above), explain the problem that exists for your customers and how your product or service provides the solution to this. Take it from me, the very last thing you want, is a great solution to a problem that doesn’t exist. Remember, the more significant the problem and the more global the problem, the stronger the proposition is and therefore the greater the chance of success.
What makes you different?
Particularly so for investors such as business angels and equity investors and perhaps to a lesser degree with more traditional types of debt funding, it is important to be able to show why you are better than the offerings already in the market – your competition. You may be offering something new, but in most cases, you must try and identify your “unique selling points” (USPs). The stronger these are, the more attractive you will be to an investor. Don’t be afraid of competition as this in some ways proves the market but do work on showing how your business will compete. Are you, quicker, better quality, lighter, bigger/smaller, more attractive etc?
A business must be able to describe who its customers are. The most robust businesses often have more than one type of customer. For example, a business may have a retail arm, it may also wholesale goods and it may have contracts with the public sector. Clearly, this business is far more resilient than one purely operating in the retail sector. I would encourage you to think about the types of customers you deal with and describe these, together with the potential size and value each customer type has for your business. Another point to remember, is customers in addition to providing revenue for your business, can also add value to it. A business with a solid established bank of regular customers, is far more valuable than a similar business without this. When I have purchased businesses in the past, this is the first thing I look at. I am sure any investor would take the same view.
Don’t confuse customers and market. You sell to customers, not the market! A simple way of looking at this, is to think of the market as a large box with a lid on it. Inside the box are your customers. In order to get to talk to your customers and hopefully sell to them, you need to lift the lid on the box. This is marketing. Marketing is one area where help is readily available. There are many specialist marketing businesses who can help with preparing marketing strategies. Additionally, in Cornwall, there are also some funded programmes who can assist. If this is an area where you think your business is weak, seek help. My experience is that most entrepreneurs are great product or service designers, providers etc. but often they are not good marketeers! Generally, I try and get clients to think about marketing in two ways. Firstly, look carefully at your existing client base and plan how you can further engage with these existing customers. You will find it easier to sell to existing customers, than new ones! Secondly, look at your channels to market for new customers, social media, exhibitions, advertising, direct selling, websites to name but a few. What you need to do here is identify those that are relevant to your business and explain how effective they will be.
Whatever type of pitch, application, or business plan you are working on to support your finance application, once you have something ready, it is important to put this in front of people who can comment on it. If you had just developed a new product, you would carry out product-testing before selling it. This is just the same.
– John Whittaker, Business Finance Specialist