Seeking funding can be an exciting time for a business – with an eye already on where you’ll take your firm next and how to get there.
Yet, there are a few important things to remember for the different types of funding out there, and you’ll need to tailor your approach depending on which you have opted for.
As a first port of call, it’s a great idea to put in place a strong business plan including draft financials. A smart plan will look to incorporate what the funding needs of that business will be and when they will be required as part of the business growth journey. The plan and the forecasts should match up, so if the plan is to get funding to buy a piece of equipment, the impact of its use and its cost to the business should then be incorporated.
Grants are funds put aside by the public sector, be this national government, local authorities or even the EU, to encourage enterprise. There are many different options available so the first step is to do some investigation in to what’s out there – the government business support finder is a good place to start.
Whilst there are many grant schemes available, it’s important to keep in mind that the application process can be very demanding and usually is highly competitive. You need a rigorous approach in making sure the grant matches your requirements, that you are eligible (often this can be determined by industry or location) and that you can provide the information you’ll need in order to apply. A business plan and three year financial forecast are often part of the requirements!
With all the work that goes into applying for one, it can be tempting to set all your hopes on a grant and become invested to the extent where you’ve put all your eggs in one basket. It’s obviously important to make sure the application is as thorough as can be and you’ve put enough effort into it, but it’s also necessary to take a realistic approach here, and make sure you’ve done research into other funding options.
Loans are an area of funding which has seen quite dramatic change over the last few years. Whilst the major banks are still around, a wide variety of new options have appeared in the market.
As with grants, a meticulous approach is needed – research is critical in getting your business funding ready. As a first step, it is worth considering what stage your business is at and what you need the funding for, as this will help you narrow the list of funding options available. For example, invoice financing is only suitable if you are trading and issuing invoices to customers on set payment terms.
Your business plan and forecasts should reflect the amount you plan to borrow, how long you need it for, how it will be spent and how much you’d envisage repaying on a monthly basis. Look carefully at the differences in rates, keeping in mind the length of the borrowing period, and whether your business is likely to meet the eligibility criteria of the lender. Remember that quite simply – you need to make sure you’re approaching the right person with the right information at the right time.
The technique for making sure you’re ready when it comes to loans may sound obvious, but planning every single detail will make sure you’re as prepared as possible and gives a business the best chance of success.
Patience is crucial when preparing for any type of funding, but equity in particular can be a long game. The value of a personal approach can’t be underestimated here – make sure you spend time meeting people you want to invest in your firm. Belief in your idea is fundamental of course, but if you’ve won over potential investors through them believing in you as an individual, that’s half the challenge conquered.
Much is said about the perfect elevator pitch and making sure you’ve packaged together a description of your firm and its prospects that’s concise, but convincing. This is particularly important here. Any potential investor will need to be convinced quickly, and will want to know precisely where they can see a return.
A good technique when getting yourself funding ready is to put yourself in investors’ shoes as much as you can. What would you want to know ahead of committing? What would sway your decision, and at what point would you tune out during someone else’s lengthy diatribe?
Three final things to consider
I’ve noticed a few repeat mistakes from small businesses when it comes to getting funding ready and it’s a lack of attention when it comes to the basics.
Firstly, having key documents such as business plans and financial forecasts is a necessary part of any pre-funding preparation – once you’ve got those in place you can tailor them to the various funding options and what you’re aiming for.
A second mistake many firms fall victim to is not knowing their numbers. Being complacent and just thinking you can apply half-heartedly, without thoroughly checking through every detail is a surprisingly common failure. Your submission will be pored over and scrutinised – so make sure you’ve analysed it yourself beforehand.
The third note is a similar one – familiarise yourself with terminology. Micro firms can seem naive by not getting to grips with key metrics e.g. what’s your gross profit margin? Check all this prior to any funding applications and you’ll put your business in a much stronger position for succeeding and setting up a springboard for future success.
If you enjoyed that, why not read...