This article by SIMON HODGES outlines the processes to be followed before initiating any form of fundraising for your business.
However, before doing so, understand this; people who lend money to businesses are professional at what they do. They make money out of the interest they charge and hence, do not care whether the principal amount is paid back or not. Their only interest, therefore, is to assess the risk any financing might bring to their business, and as they have heard every sales pitch, you can imagine they are skeptical of all new applications. The question is how do you stand out so as to have the best chance of success?
The answer lies in planning a communication campaign that sells your business and ensures that the risks to the financier are removed implying that they have no reason not to provide the money.
The first step in this sales process is to take an honest look at what’s going on in the business using an independent third party as it is tough for a management team to be objective while carrying out such a task. It is quite a sobering thought the number of times this process reveals how unclear team members are about what other people are doing and how their job interacts with each other.
This state of affairs arises because as the business grows, more people are employed leading to long lines of communications and creating a business that seemingly makes endless silly errors. These are put down to individual incompetence, but almost always reflect a growing lack of control over the company’s activities.
It is quite a sobering thought the number of times this process reveals how unclear team members are about what other people are doing and how their job interacts with each other.
To correct this, it is important to put in place a plan that can be followed by all the employees. The other purpose of the plan is for financiers and other third parties, suppliers and employees to be able to understand where the company is heading, and be able to assess the risks of doing business with you.
The first stage in setting a plan is to establish a measurable target where the company needs to be in three to five years’ time. Suitable targets should focus on items such as the number of outlets, sales locations, or the number of fee earners if it is a professional services firm. Whatever might be the measurements, stretch your targets but keep it achievable. In fact, targets are rarely achieved, however, if they are ambitious then performances will be pushed, and results will nonetheless be impressive.
Now take steps to fully understand the marketplace by first researching the size and then the activities of your competitors. Identify the features of your products and services and then look at their benefits from the customer’s point of view. The objective is to determine what makes the business different and the market niché.
Next, it will be beneficial to calculate how much investment will be needed to create the identified resources and where the revenues are going to come from to achieve the plan.
To do that, it is important to understand the source of the profits. Again, it is often surprising how little is understood about how a company makes its money, and that’s because a typical accounting function includes just basic bookkeeping activities rather than the more advanced financial or management accounting skills. If the appropriate skills are not available within the company, engage a firm of accountants to carry out a review of the current finances and prepare a forecast.
The final step is to conduct a risk analysis, the purpose of which is to identify the potential barriers to success and put in place proper actions to mitigate their effects wherever possible.
Provided businesses carry out these steps diligently, the risks of not being able to obtain the necessary financing and support their growth plans are significantly reduced.