Some fast-growing young businesses manage to finance their growth out of retained profits, but unless you are in the fortunate position of running a business which is cash-rich, or you have an understanding bank, where do you go for outside funding or investment for new machinery plant or property, or a suitable acquisition opportunity? Equally important, can you prepare a convincing business plan?
If your bank isn't helpful, there are other options. Whichever you choose, be prepared for two certain requirements. First, anyone prepared to invest in your business will want to scrutinise it from top to bottom; and second, you will be expected to produce a business plan - a strategy for continuing expansion and profit growth. A few forecasts on the back of an envelope won't do. It's got to be a very detailed document - a winning business plan.
Your accountant can help; and at the same time may be able to put you in touch with business "angels", private individuals looking for capital growth or income and perhaps even interested in helping to run the business. Depending on the size of investment needed, venture capital funds, flushed with cash, may be the answer, but they are not too interested in small requirements. They are more often associated with high risk/high return investments coupled with a short exit strategy.
Another route may be a management buy-in, in which you part with some equity, or flotation on a junior market - Ofex or AIM. The stockmarket isn't too popular right now and small cap stocks are out of favour. Even large quoted companies prefer to switch from public to private.
Whoever is finally interested in investing in your business, be prepared for due diligence investigations by the investor's accountants who want to make sure any investment is as good as claimed and there are no skeletons in the cupboard. Next, if you haven't already got one, start work on a business plan showing how you intend to take the business forward and why additional investment is necessary and what it's forecast to achieve.
What key information needs to be included in a winning business plan? Obviously details of the firm's history, management, trading performance, financial controls, prices and margins and how the new investment will speed up growth. Investors want to see what makes the business tick, but also - in the case of a loan - whether it can offer security and afford regular repayments.
Besides making financial sense, what the business plan really has to demonstrate is the quality of management and the skills and experience of directors and senior managers. Any investor will want to be assured that a key member of the team isn't planning to leave. Are they all "locked in", ie. under contract? Are succession plans in place? If you have non-executive directors, what exactly do they bring to the party? Similarly if you use consultants, are they worth their fees?
Investors and bankers often want to know more about trading performance, competition levels and threats, market share and key customers. If any of these suffer a downturn, could it seriously damage your business, as many small food suppliers are finding because supermarket trading is lacking its usual buoyancy?
If cash is needed for a new development, or a new start-up, there are four ingredients to high growth, according to Doug Richard, one of the stars of Dragon's Den, the BBC's programme about investing in entrepreneurs: an innovation, a good team, the right market opportunity and the right financial strategy. A winning business plan should show that you've taken all these into account.
Investors like innovators, especially where an old business has found new ways of operating. A recent example is a traditional men's barber shop which aimed for expansion by franchising. Women's and unisex hairdressers have done it for a long time, but until recently there has never been a traditional men's barber franchise chain.
Dell Computers, Amazon books and easyJet are further examples of developing a better way to market established services.
What proof can you offer that the project will work? Have you researched the market to test demand, launched a pilot study, ironed out any faults in the case of a new product or service, and carried out a test marketing exercise?
Does your proposal show there is a market for what you are offering, that you can meet health and safety regulations, or packaging and labelling requirements? Whether you opt for innovation or straightforward expansion, a marketing strategy and detailed distribution plans and sales forecasts form a key part of a winning business plan.Reuse content