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Your Guide to Business Financing

Getting external financing to fund your company’s growth will depend on your plans, how willing you are to give away a stake, and, therefore, control in the business, your eligibility, and the short-term or long-term funding you need.

How to finance your business growth

Bank finance

Banks can offer you:

• Unsecured business loans. These will have fixed repayments (including interest) over a set time frame. The amount and the interest rates will depend on the bank and your circumstances.
• Secured business loans. To obtain a business equity loan, you’ll need to offer your company collateral or assets as security (for example, property, inventory, or equipment). The amount you can borrow will depend on the value of the assets.
• Buy-to-let loans and commercial mortgages. These are suitable if you’re looking to buy or remortgage business premises.
• These are more suitable for short-term financial support when your company has a cash shortfall.
• Business credit cards. Again, these are probably best for short-term support.
• Invoice finance. It will mean you can access cash that is otherwise tied up in outstanding invoices. It’s ideal if your company offers long payment terms to customers or if you need to grab growth opportunities.
• Asset finance. This allows you to make small regular payments for an asset rather than a large, one-off payment. It is ideal If you want to preserve your working capital and generate income from an asset as you pay for it.

Angel investors and venture capitalists

If you’re willing to offer a share of your company or equity, you could approach third party investors such as angel investors or venture capitalists (VCs).

You might not have to repay their investment, but the share they will want in return is likely to be high.

Alternative investment markets

You could also consider alternative finance options. These include crowdfunding and peer-to-peer funding.

• Crowdfunding. In return for early access to your products/services, discounts, or an equity stake in your company, you can raise the money you need from a crowd of small investors.
• Peer-to-peer lending. You can borrow from individual small investors. If your application is successful, you’ll probably be able to borrow more than you would through a bank and access the funds quicker.

The criteria for the loan might not be as stringent as a bank, but the costs might be similar.

Is your company eligible for funding?

Banks and investors often use what’s known as the CAMPARI method to decide if your company is eligible for funding. That is:

• C This incorporates everything from your professionalism and brand reputation to your company’s record in repaying loans.
• A This is about you and your team’s knowledge and expertise and how successful you’re likely to be to generate growth from the financing that investors are being asked to provide.
• M This is about how well your business is equipped to meet your growth plans. Investors will want to see your Return on Equity (ROE), growth projections, your competitive advantage, detailed financial reports, performance record, and a comprehensive expenditure report.
• P Investors will want to know how you will use the funds and how they will help to boost the company’s financial situation or generate a profit.

For example,  if you have no liquidity in the business but need it to fulfil an order or if you need a type of machinery to be able to increase your product or service range.

• A This is about showing investors how you came to decide on the level of funding you’re applying for.
• R Investors need to be convinced you can afford any repayments. They’ll look in particular at your cash flow and profit margins.
• I This is all about showing investors you have a fallback position if things go wrong. They’ll need to be convinced you have another source of repayment should you need it.

The use of management dashboards to monitor management KPIs, metrics and other essential data points will allow you and your management team to make rapid, data-based decisions based on up-to-date information about your business.

A management dashboard provides you with a comprehensive snapshot of the company’s performance. This is critical since it condenses massive amounts of information into a one-page summary that can provide invaluable insight into the health of your company and help with executive decision-making.

It allows you and your managers to access the most relevant information instantly.

The data is represented graphically using tables, line charts, bar charts, sparklines, maps, or gauges so you and other users can see the information at a glance.

They also allow you and other users to drill down to investigate further if necessary.

Types of business dashboards

There are three types of business dashboards:

• Operational dashboards which emphasise monitoring. These reflect the business processes and help monitor KPIs.
• Strategic dashboards which emphasise management. They reflect the end status of a KPI or metric for a set period.
• Tactical dashboards that highlight analysis. They will help you to identify trends and to track how metrics have changed.

Finance dashboard

Your finance dashboard should offer a summary and interpretation of key aspects such as profit and loss, and cash management.

Sales and Marketing dashboard

Your marketing dashboard should provide insight into how successful the company’s marketing efforts are at generating sales and attracting and retaining customers. You should be able to see where people are getting ‘stuck’ in your sales funnel or pipeline.

Risk management dashboard

Your operation and safety dashboard should help you and your team to manage and prevent risk. It could include training and awareness, incident management, claims, compliance, risks for assets and projects, and hazard identification.

HR dashboard

Your HR dashboard should provide reports on internal metrics such as employee satisfaction as well as external metrics such as your company’s success rates for recruitment. Depending on the size of the organisation, it could also be used to track turnover and retention rates.

The benefits of using management dashboards

• Instant access to core business metrics

Users across your organisation will be able to access core business metrics.

• Consolidate data from across multiple analytic services

The management dashboard consolidates data from many data points in an organisation to provide one reporting interface. It will save time and effort typically spent on compiling reports, signing into different analytic services and then sharing the data to everyone in the company.

• Provide real-time updates

Since changes in data or values is reflected in dashboards, you can identify fluctuations in crucial business metrics when they happen rather than having to wait for daily or weekly reports.

• Align departments

Dashboards can provide metrics that are relevant to each department.

• Allow root cause analysis

If you spot unusual trends in your summary reports, you can drill down to find their root cause.

• Communicate and manage strategy

Dashboards can be used as agents to boost organisational change.

How to design the best dashboard

A well-designed dashboard will help improve your company’s productivity and save time, but a badly-designed dashboard will confuse users and challenging to share. It needs to be easy to use and to report the most meaningful data and insights.

That’s why it’s critical that you select the right metrics to display. Avoid the temptation to add as many metrics as you can. If you need to monitor lots of metrics, use dashboard tabs.

Keep the design simple to make it easier for people to read and to digest the information. Avoid using too many colours or fonts or different graphics. Group data in a way that’s relevant and which provides context.

To encourage as broad a range of users as possible, make the dashboard interactive with options to filter and drill down.

Decide the reporting frequency based on the type of dashboard you’re using. For example, structure operational dashboards so they provide daily reports and set up strategic dashboards to give a monthly or quarterly report.

Here’s another in our continuing series of ‘reasons for business owners to be cheerful’, based around a seminar session delivered to The FD Centre by respected UK behavioural economist Roger Martin-Fagg.

Necessity. It’s the Mother of Invention, as we know. When the going gets tough, we all know how that phrase ends. But it is an undeniable fact that while innovation in general can happen at more or less any time, it’s when our backs are against the wall that we see these innovations actually put to valuable use.

So we emerge from challenging times armed with new skills and new tools with which to feed business success. For example, most of us are by now all too familiar with the concept and practice of video conference calling. We’re aware of the value of a dressed background, a well-lit subject, an adequate microphone and above all a reliable broadband connection – even if we can’t always attain them. It’s a skill many of us didn’t recognise or require 18 months ago.

The pandemic inevitably means that office working and commuting won’t dominate the working landscape as it once did. In a survey conducted after the first lockdown, 78% of employers said productivity had either stayed unchanged or increased, after home working was encouraged[1].

On a macro scale, the smart investment money is pouring into quantum computing technology, which will deliver transformational processing power and efficiency to functions such as back-office administration and operational support. It’ll mean white collar redundancies, but it’ll also mean leaner, more efficient businesses. Businesses that, since the Brexit deal was signed, will (bar the inevitable teething issues) continue to trade with Europe.

So, despite plenty of apparent evidence to the contrary, there’s a lot to look forward to in 2021 and beyond. More to the point, there’s a great deal to prepare for. Good luck and keep those glasses half full. And who knows, we might soon be raising them in a pub…

[1] https://www.alliancevirtualoffices.com/virtual-office-blog/remote-working-statistics/

As the UK emerged from lockdown 3, it was revealed that the amount of cash that the Chancellor of the Exchequer pumped into the economy to keep it functioning had hit new peacetime records. So it’s natural to ask the question: ‘How are we going to pay it back?’ There are fears that taxes will have to rise significantly, with corresponding negative effects on growth. But economic theorists offer an interesting and perhaps more encouraging perspective.

Like many leading world economies, the UK government follows Modern Monetary Theory. Essentially, the government central bank (the Bank of England) provides as much cash as the economy needs to prevent it crashing and burning completely. The economy continues to generate output, albeit at a reduced rate. Interest rates are kept low to encourage spending.

The idea is that maintaining the money supply allows spending on increasing productivity – on infrastructure and education, rather than welfare and pensions. The Bank of England can allow its client (the UK government) to take its time paying it back because, unlike commercial banks, it doesn’t have to turn an annual profit. So taxes shouldn’t have to rise until the business is well into its recovery phase – in other words when it can afford it.

The key is to avoid the policies of austerity. Tightening the belt a notch instinctively feels appropriate when business is poor, but according to Modern Monetary Theory, austerity can damage the prospects of future growth by starving the system of the resources for investment.

Secondly, while unemployment is very likely to go up – it already is, of course – it shouldn’t affect key economic foundations like the housing market too adversely. In fact, we’re currently seeing the opposite. Remember – the bank of Mum and Dad is the 10^th largest supplier of housing finance in the UK, and it’s not answerable to corporate shareholders.

The inevitable blockage in the flow of cash through the economy caused by lockdowns results in a build-up of cash at the source, because there’s nothing to spend money on. After a lockdown ends, there’s an immediate surge of money into the economy. As we emerge from the pandemic this is likely to be a significant feature of economic activity.

Businesses are built on positivity – a scarce commodity over the past year. If you’ve been struggling to spot the silver linings around the dark clouds of coronavirus, maybe this is a good time to remind ourselves of a few.

Right now we have not one, not two but three vaccines currently approved for use in the UK. At the time of writing, nearly a quarter of the adult population has received both shots, and infection rates are dipping back to levels not seen since summer 2020.

Of course, the watchword is caution. It’s all too clear from global data that some nations still have huge challenges ahead. The UK won’t be indulging in the wholesale removal of restrictions for some time yet, but with care, we stand a good chance of stopping the pandemic in its tracks.

Added to this we can take some joy from the fact that, yes, summer’s coming! At this stage, we still don’t know if we can book those much-missed holidays in the sun, but even if not, the evidence clearly suggests that outdoor socialising has a suppressing effect on the transmission of Covid.

And here’s another positive thought: yes, the government is spending huge amounts of money to keep as much of the economy afloat as possible; borrowing has reached record peacetime levels. But this doesn’t necessarily have to be seen as a bad thing.

The behavioural economist Roger Martin-Fagg recently addressed an FD Centre seminar on ‘Economic Recovery and Structural Change’. Roger’s thesis is that economic recovery will take less time and be less traumatic than we perhaps imagine. For a start, all that money we’re not spending hasn’t just disappeared. It’ll start to be released, probably around the time we can start to book those holidays.

His other insight was Modern Monetary Theory – the system on which the UK, in common with many leading world economies, bases its latest economic policy. The key to MMT is to keep the economy functioning, no matter how much cash it takes, and then to take time to pay back the debt until the country can afford it.  There will be more on Modern Monetary Theory in a future post, but for now, we’ll raise a glass (outdoors) to the power of positive thinking!

Back in mid-2020, we were all still getting used to the fact that COVID-19 had pulled the rug from under all our best-laid business plans. We’d come out of our first lockdown, it was summer, the sun was shining (occasionally) and the low numbers in the daily pandemic updates rather massaged our mutual sense of community spirit: keep a stiff upper lip and it should be over by Christmas.

Well, here we are a year later. We’ve now emerged from lockdown number three. Mutated and even-more-virulent strains of Covid have put the nation’s heroic care services under unprecedented strain and are currently on the rampage elsewhere around the globe. It’s still cold and wet outside (in May at least), many have either lost their jobs or are furloughed. People are not spending very much money and many businesses are in a real fight for survival. In summary, there has been a pretty grim expression on the faces of most of the good business folk of the UK.

Some statistics suggest it’s not over yet. While the impact of the pandemic on the labour market may be stabilising as vacancy levels increase and redundancies decrease since their peak in September-November 2020, unemployment is still expected to rise when the Coronavirus Job Retention scheme ends later this year.[1]

But the recent news is better, for the UK at least. We now enjoy one of the lowest infection rates in the world and one of the most successful vaccination programmes. All that money that people haven’t been spending over the past year, on holidays, entertaining, travel, and such, is still there in the system, and as businesses cautiously welcome customers back, there’s evidence that people are ready to splash the cash.

If you’ve held out this far, and have made sound business plans for the future, there’s no need to panic. There will be life beyond the pandemic. But to enjoy it, and the things that really matter to you, your business needs to be in shape to make the most of the opportunities ahead.

[1] Howe of Commons Library research Briefing, 30 April 2021: https://commonslibrary.parliament.uk/research-briefings/cbp-8898/