In the "post-credit crunch" economic landscape, raising finance to develop your business can be a challenge. Our economy does look to be improving and this is a time many businesses should or could be expanding to capitalise on new opportunities.
Back in the heady days of Brown and Blair, it was comparatively easy to raise money - perhaps too easy, some would say. But now the reverse is true. Banks are cautious, credit terms have tightened up and many cash-rich organisations are holding on to their cash. So, if you are a micro enterprise (up to 10 employees) or a small enterprise (up to 50 employees), how do you raise cash for expansion? How can you release your inner brave entrepreneur?
Using retained profits
Perhaps the method making the best financial sense and the one offering least risk is that of using retained profits - the money you have kept in your business from successive profitable years. However, if your financial reserves are low then you will need to look at alternatives.
The main thing when seeking outside finance - as Baldrick would say to Blackadder - is to have a plan, and preferably one that works better than the cunning plans he came up with. This may seem obvious, but many business loan applications come unstuck at this point. Any potential source of finance will need to see that you are competent, organised and have a realistic business proposition - think how would you stand up and account for yourself in Dragons' Den.
The method of financing business growth will then depend on your plans. It might be that you are a landscaper operating just one team but feel there is an opportunity to develop a second and you therefore need to finance a new vehicle. This type of financing can be simple, ranging from a traditional bank loan to a variety of lease hire/purchase options offered by the manufacturer.
Whatever arrangement you get into, however, you need to be sure that you can meet the monthly repayments, so producing a detailed cash-flow forecast based on your projected sales is vital. In fact, this cannot be underplayed. Not matter what sort of finance you arrange for your business it will need to be paid back, so making good financial budgets and sticking to them will ensure that you meet your liabilities.
Another fairly easy and reliable option to raise finance is by a shortor long-term loan from a bank - easy to achieve if you are an established business with a proven track record but more difficult if you are a start-up. Whichever stage you are at, if you are planning to finance growth through a bank loan you will need good, accurate forecasts including profit and loss accounts, balance sheets and cash-flow forecasts, so getting your financial house in order will make it easier to get a loan.
You could also use your own savings, assuming they are adequate, to finance a venture, cutting out the need for gaining funds from a bank or third party. If you choose this route, however, make sure the projected returns from the business investment will be higher than the returns anticipated on your savings.
If you do not have enough savings, an alternative is to use willing friends and family to help finance your business plans. While this may seem attractive and is often at a very competitive rate, it is obviously potentially complicated and can have disastrous consequences should relationships change or the investment in the business fail. Clear and written formal agreements need to be in place and you need to make sure that all parties know what to expect, what the repayment terms are, what the contingency is and whether you will establish legal agreements. Remember, if it goes wrong damage to personal relationships may be irreparable.
If you are not fortunate enough to have family money available, another option is to find an "angel" investor - someone who gives you money for a return on their investment. There are organisations that seek to unite investors with entrepreneurs, many of whom may have a strong interest in sectors such as horticulture where there is clear sustainability, history, and a genuine positive impact on people's well-being. Your business plan will need to be robust and warrant close scrutiny, and you may also find your own personal values, lifestyle and abilities will come under focus because these "angels" will really be investing in you.
Larger businesses might also consider financing an enterprise through collaboration with a venture capitalist. These are essentially capitalists who are in the business of setting up other businesses and generally they are only interested in larger enterprises.
Try to be as creative and flexible as possible when considering sources of new finance. You may have assets that could be sold, such as unused vehicles. You may also be eligible for a "micro loan", which can be available to people who have trouble obtaining finance. These are often offered through community backed schemes or charities.
"Peer to peer" funding has also become more widely available, with many schemes such as Funding Circle now reaching out to entrepreneurs. This organisation is supported partly by funds from Government initiative the Business Finance Partnership, which aims to invest £1.2bn in increasing lending to small and medium-sized enterprises through sources other than high street banks. It matches businesses looking for loans with people ready to lend. It is worth doing thorough research and trade or business organisations such as the Federation of Small Businesses can offer information and advice.
Length of loan
Finally, make sure you know how long you need the money. Short-term finance might only be required to fund a shortfall in cash flow while a business development gets underway. Increased cash flow from the development then can fund further work. Other developments where the cash flow increase is not anticipated for some time will require longer-term loans and repayment terms.
Our business landscape remains challenging despite the positive signs and business financing is still a tricky area. But there are sources out there for a well-organised and considered business plan. The more options you have the better, and the better your figures are the more options you will have. So if you have an idea, do your research, do your books and release that inner entrepreneur.
Neville Stein is managing director of business consultancy Ovation