Funding Business Growth to Maximise Opportunities

 This subject has come up 3 times in the last week with some of our clients and it is one that challenges most leaders of growing businesses at some stage in their development.

The dilemma is whether it is possible to grow the business without some external funding?

This always assumes you can see plenty of business opportunities ahead.

A good starting point is to firstly establish what you can do with your existing working capital, look at the 3-year plan and see if your existing resources can fund this.

You may be able to supplement this by reducing customer credit days and agreeing on extended credit with your suppliers, it may be by applying a few tweaks here and there you can manage without additional funding, a great low-risk solution.

However, it is not always possible to take advantage of the business opportunities ahead without additional funding. This comes in many shapes and sizes but always comes at a cost and with an element of risk. It’s that old risk-reward argument.

You could start by creating a 3-year plan that looks at best, average and worst-case scenarios and establish what if any additional funding you need for each scenario.

Get your finance people (internal or external) to look at this and go through your cash requirements as this will help you decide which revised plan you want to pursue and more importantly what extra funding you will require and when. It will also help you clarify what exactly you would do with the extra funding.

Let’s assume you decide to go for a more aggressive plan to grow your business.

They are many and varied ways to get funding and they do very much depend on how much you need, your current success levels and the size of the potential opportunity ahead.

Let’s look at a few of the more obvious sources of additional funding (not a definitive list and in no particular order), which could consist of loans, the sale of some equity/shares or a combination of both:

  • More cash from existing shareholders
  • Cash from family and friends
  • Asset finance – mortgage, lease, HP etc
  • Invoice discounting – essentially reducing your debtor days
  • Bank loan – without tangible assets to support the loan you may need personal guarantees
  • Bank overdraft – as above
  • Crowdfunding/lending – a newish market and less regulated than some other options but worth exploring.
  • Business Angels – there are plenty of high net worths around looking for good returns on their cash
  • Grants – you may be surprised what is available
  • Venture Capital – typically they buy some of your equity, taking a minority stake, and provide the business with a mixture of equity and debt. They would love a 3-5 X return on their money in a 3-5 year period, normally through some form of sale or exit, but timescales and returns vary immensely.
  • Private Equity – typically take a majority stake looking for similar returns etc. to VCs in similar timescales.

Your options are likely to be determined by your current trading, the amount of money you need and the level of risk you are prepared to take.

This is all pretty obvious stuff to experienced finance people and experienced CEOs but not always obvious to leaders of growing businesses, it’s the type of challenge we discuss in our peer advisory boards, where you can get solid advice from up to 12 experience business leaders.

The normal starting point for seeking additional funding is your existing financial advisors, as they should know what options are available to you and also be able to signpost you to the most appropriate providers.

Finally, remind yourself why would any business leader ever consider external funding? There is only one reason – to create a better and more valuable business that increases shareholder value. What’s stopping you?