Create a “Funding Road Map”
Aiming high is only an option when you know exactly what you are aiming for. Whether you need funding to start a new business adventure, or you need funding to grow your existing business there are a few key questions you should make sure you know the answer to before approaching potential investors.
Much of the focus around discussions tend to be about the amount(s) required and the sales or marketing effect of such funding, and although this is obviously a key reason for much of the funding requirement in the SME sector, it forms a part of a larger and typically much more structured ‘road map’ required, when considering where and how to obtain the right funding for your business.
Key Points and Pit Stops on the Funding Road Map
In order to make sure you steer towards the right funding and investors there are a few stops you should make along the way to “fund-ville”. Considering the following
1st. Stop: Why this way?
Why do you need the funding?
Start out by considering whether you actually need external finance before going down this road. Is the business not generating sufficient revenues? Have you provided funds from your own sources? Can you modify your plans and grow more slowly without the additional funds?
Picture: Tauno Tohk via Flickr http://bit.ly/1MPnr3H
2nd Stop: Which way at the roundabout?
What are you proposing to use the funding for?
Make sure you can clearly explain exactly what you are planning to spend any additional funds on, when and for what purpose?
3rd Stop: Where are you headed?
What will be the clear business results or outcomes of the spend?
Can you identify how the spend will positively impact on the business activities in the current year and/or in following years – e.g. additional developers to complete software build and enable it to be brought to market, website build to support online sales activity, marketing team to increase pipeline activity, equipment to reach new target market clients?
4th Stop: Gas Station, Garage or Grand Prix?
Are you approaching the right funding providers?
Certain types of business lend themselves to certain types of funding. For example a traditional style business with consistent but gradual growth, may be better off going to traditional lenders for debt funding, whereas food/drink or tech related businesses are more likely to be suitable for equity investment, as they may have low current trading activity, but may have a number of different routes to market and can scale more quickly.
A desire for control may also determine your approach to funding options. Equity funding will mean giving up a chunk of your business to a third party, who will also have a say in the ongoing running of the business.
5th Stop: The Way Out
Are you providing a clear ‘exit’ strategy for your funder?
If the funding is received from a lender, then the exit for them is the successful repayment of the debt and the related interest across the specific period, however for an equity investor the exit will be an opportunity for them to sell their stake to a third party on the assumption that the business grows in the manner than is expected and attacts interested investors at the next level.
Photo: Clay Junell via Flickr http://bit.ly/1JTiQNT
6th Stop: Red means no, green means go!
Do you know and are you in control of your financials?
In any circumstance where a business receives funding, whether debt or equity, there will be more interest and/or focus on the financials of the business going forward. Either the lender (bank or other lender) will have insisted on monthly or quarterly copies of management accounts or regular updates on cash or customer balances, or alternatively the equity investor will insist on attending at regular board meetings or receiving specified financial information packs, so being in control of your financial information will be key to maintaining a successful relationship with your funding provider.
We have helped several SMEs obtain funding – Let us know where you are headed!
Are you looking for funding for your business, do you know who you are going to approach or have you got a compelling story (backed by financials) to satisfy prospective buyers.
We can assist with preparing your business for finance, so feel free to call Damian Connolly on: or email email@example.com