Business growth is rarely just the product of hard work and dedication. It typically requires an injection of cash to get things moving – whether that's used to make a strategic hire, invest in an important piece of technology, or simply to ensure a steady supply of working capital so you can concentrate on taking your operation to the next level.
But before you seek funding, it’s important to be prepared – and that means being clear in your objectives by fully assessing all your obligations and opportunities.
Use the following checklist to make sure your house is in order.
1. Is your business plan up to date?
Ideally, all your business activities should align with your long-term goals.
The day-to-day realities of running a business may sometimes interfere with your plans, but funding decisions are best made with forethought.
In order to make a choice that fits with your strategy, you need to be sure what that strategy is… and most of your lenders will be interested, too!
2. Where do you want to take your business?
Consider the following:
- Are you seeking to grow?
- If so, how quickly?
- Do you want to take on more permanent staff/flexible workers?
- Do you need to invest in infrastructure?
- Is an acquisition on the cards?
Be clear on what you are trying to do, then ask yourself:
3. What will it take to achieve your goals?
It will take time to identify significant constraints or dependencies… Give consideration to your current financial circumstances before casting an eye to the future:
- What obligations do you have to existing staff, landlords… lenders?
- Is your current income derived from a wide client base, or do you rely on a few big payers?
- Can you depend upon your existing clients for continuing business and payment?
- Are you chasing debtors?
4. Research overheads/ future costs
When you've assessed your present situation, apply the same thinking to your projections.
Expansion typically requires a lot of energy and, of course, some funding before the cash comes in.
For example, taking on more staff will put a significant drain on your operational expenditure that may not be immediately matched by income.
This is easily rationalised if hiring to meet a surge in demand, but requires well-informed justification if speculating to generate new business.
Put yourself in a client frame of mind and consider hiring on fixed term contracts!
5. Be pragmatic, don't underestimate
I’m a firm believer that the glass is half full. But it's better to be pragmatically pessimistic with your projections, especially if you have other shareholders.
Seek efficiencies, but don't economise on your ability to do the job properly. (If you're just starting out, raising six months' upfront costs is a good rule of thumb. And remember you need to pay yourself a living wage.)
So, that's the preparation phase. Next step – choosing your funding options!