Before you seek external finance, you need to work out what is realistic in terms of amount, the timescale and the factors that will affect these calculations. Backers expect you to arrive at the sum you seek through careful planning and rigorous research. Fundamentally, they want to know what it is for, how long it will last and when you will provide returns.
It is important to be realistic for the stage of development your business is at. For most companies funding levels tend to rise incrementally from small amounts of debt, to more sophisticated facilities (such as invoice finance and leasing), to angel, venture capital and public market funding. Think about:
- How financial institutions view your sector
- Your management team’s track record
- Existing and potential future competitors, and the economic climate
- Your existing debt facilities – the difference between what expansion capital you think you need plus everyday overheads as you grow, and the availability of your existing facility
- Your asset backing – any assets you can use as security with investors or lenders
- Vision – it’s important to have a clearly defined goals and ambitions for your business
How much should you ask for?
You need to cost each aspect of your growth strategy. For acquisitions it helps if you have identified potential targets and valued the business. To launch a product or service you will need a marketing plan, which includes:
- who you will target, assumptions about how
- many sales or customers you hope to
- acquire, the medium you intend to use and
- the cost of the campaign
Opening or purchasing new premises will require some assessment of the cost to buy or rent in the area you plan to locate, as well as any modifications you will make. If it is working capital you are after, you will need to assess market rate salaries if hiring staff; the cost of equipment required; or how much suppliers would charge for additional stock.
Ultimately, you may need to temper your ambition. You may have to recalculate if the financier offers you a smaller amount, so it is worth having alternative growth plans to ensure you don’t lose time trying to raise finance while your existing resources dwindle.