Raising Finance: Essential Tips for Success

Raising finance is a critical step for any business looking to grow, innovate, or simply maintain operations. Understanding the intricacies of this process can make the difference between success and failure. This article will walk you through the essential aspects of raising finance, ensuring you are well-prepared to meet the expectations of financial providers.

Understanding Financial Needs and Expectations

When entering into a financial agreement, it’s crucial to recognize that both parties have specific needs and expectations. These are shaped by industry norms, professional standards, and market conditions. Meeting the expectations of your finance provider increases the likelihood of securing the necessary funds.

Allow Adequate Time

Timing is everything. Ensure you provide sufficient lead time for your financial pitch.

A minimum of three months is recommended to allow for thorough due diligence and to meet all financial information requirements.

Key Requirements for Financial Support

When seeking financial support, especially in the form of a bank loan, you need to present a comprehensive plan. This includes:

• A Financial Plan: Covering the next 12 months, including an executive summary, detailed descriptions, income and expenditure summaries, historical performance, and future projections.
• Financial Statements: Reviewed and prepared by a third-party accountant, no older than 6-9 months.
• Compliance Reporting: Confirmation of timely tax compliance.
• Personal Guarantee: From the shareholder(s).

Crafting a Robust Financial Plan

A well-crafted financial plan is essential. It should include:

• Executive Summary: A concise overview of your plan.
• Detailed Descriptions: Covering key areas of activity.
• Financial Summaries: Including historical performance and future projections.
• Cash Flow Projections: Detailed forecasts of income and expenditure.
• Balance Sheet Forecasts: Future financial position of the company.
• Assumptions: Clear explanations of the assumptions underpinning your projections.
• Key Ratios: Financial and operating ratios for the covered periods.

The Importance of an Integrated Financial Model

An integrated financial model is a sophisticated tool that combines various financial statements and projections into a cohesive framework. “The objective of financial modelling is to combine accounting, finance, and business metrics to create a forecast of a company’s future results.” (Corporate Finance Institute). Financial modelling provides investors and stakeholders with the necessary information to decide on funding a business and the terms required, and it is essential for several reasons:

1. Holistic View of Financial Health: Ensures all aspects of the company’s finances are considered together, providing a clearer picture of overall performance and financial stability.
2. Enhanced Credibility: Demonstrates financial sophistication and discipline, reassuring lenders and investors of the company’s ability to manage finances effectively.
3. Accurate Forecasting: Allows for detailed and realistic financial planning, aiding in informed decision-making about investments and expansions.
4. Scenario Analysis: Enables testing of different assumptions to identify potential risks and prepare contingency plans.
5. Dynamic Reforecasting: Supports regular updates based on actual performance and market conditions, ensuring the financial plan remains relevant.
6. Improved Decision-Making: Provides a clear view of financial data, helping management make better strategic choices.
7. Stakeholder Confidence: Builds trust with investors and lenders by demonstrating proactive financial management and transparency.
8. Operational Efficiency: Streamlines financial reporting processes, reducing time and effort, and allowing focus on strategic activities.

Levels of Financial Statement Attestation

Third-party accountants can provide different levels of attestation to your financial statements:

• Notice to Reader: Entry-level attestation.
• Review Opinions: More detailed review.
• Audit: Highest level of attestation, providing limited assurance.

Higher levels of attestation increase the credibility of your financial statements, supporting your lending proposition.

Timely Compliance Reporting

Timely tax compliance is a key indicator of your ability to meet financial obligations.

Ensure all tax responsibilities are reported and settled promptly to maintain your company’s status as a going concern.

Personal Guarantees

Personal guarantees are a serious commitment. They provide additional security for the lender but can have significant implications for the guarantor.

It’s advisable to negotiate the terms and seek professional advice before agreeing to personal guarantees.

Specifying the Use of Proceeds

Clearly define the use of the loan proceeds in your financial projections.

This should align with the lender’s stated purposes and increase the efficiency of the financing process.

Choosing the Right Type of Finance

Different financial intermediaries offer various products tailored to specific needs. Understanding these products and matching them to your company’s requirements is crucial. Examples include:

• Project Loans: For defined periods.
• Working Capital Loans: Secured by company assets or personal guarantees.
• Long-Term Loans: Secured on company assets.
• Unsecured Loans: Repayable on demand.
• Subordinated Debt: Higher risk, higher interest.
• Asset Financing: Secured on the asset.

Exploring Alternative Financing Options

In addition to traditional financing, consider exploring alternative options such as:

• Equity Financing: Selling company shares to investors, including venture capital, angel investors, or crowdfunding.
• Grants and Subsidies: Applying for government grants or subsidies to support business growth and innovation.
• Alternative Financing: Options like peer-to-peer lending, merchant cash advances, or revenue-based financing.

Planning for the Long Term

For financing commitments longer than a year, detailed 3–5-year plans are necessary.

These plans should include strategic thinking, risk analysis, and justification for new initiatives.

Benefits of Raising Finance

Raising finance can provide several benefits to business owners, including:

• Growth and Expansion: Capital enables businesses to invest, expand, and enter new markets.
• Improved Cash Flow: Financing helps manage cash flow for short-term obligations and long-term growth.
• Increased Competitiveness: Access to funds allows businesses to innovate and stay ahead of competitors.
• Risk Mitigation: Diversifying financing sources reduces reliance on a single capital source, spreading risk.

Key Takeaway:

Raising finance is a sophisticated process that requires careful planning and professional advice. By understanding and meeting the expectations of financial providers, you can secure the necessary funds to drive your business forward. Properly executed, raising finance can significantly enhance your company’s value and growth potential.

About Rizolve Partners:

Rizolve Partners helps business owners navigate the complexities of raising finance. With expert advice and tailored solutions, we ensure your financing strategy aligns with your business goals and maximizes your chances of success.  To learn more, check out our process expertise tip sheets here.