Andy Collier, Co-Managing Director of The FD Centre, decided in 2002 that he wanted to move into a portfolio career. Since then, he has utilised his wide ranging FD experience to manage the North of England team within The FD Centre, before recently becoming Co-Managing Director. He has encountered numerous companies who have needed help raising funding during his professional career, so we decided to sit down and discover his top tips on raising funding.
How can I raise funding for my business?
As an FD, we don’t go straight into the mechanics of how we’re going to raise funding. Typically funding is about oiling the wheels of a business. There are different types of funding: Short term, Medium term and Long term funding. So if you are asking the question about how you raise funding, you’ve got to ask what time period you’re talking about and what’s the purpose of the funding, which will give you a detailed answer.
What are the different types of funding that you can get?
Short term, Medium term and long term funding as we’ve talked about. Also types of funding based on different assets, some secured by the lender on debtors or fixed assets. The amount of funding available makes it a very confusing area if you’re not in the expert field.
What is Equity Funding?
Equity funding is very different to capital funding, which involves bank lending and invoice factoring etc. Equity funding is in the sphere of long term investment to accelerate the business to a different place. It’s a big decision for the business owner because they are relinquishing some control over the business to get the funding it needs. Which sounds negative, but it’s not necessarily. Equity funding is more appropriate at some stage in a business’s life than working capital funding. Equity funding typically is used to move a small business to a different level and fund major developments or long term projects. However there is a conundrum with the entrepreneur where they feel like they’re losing control.
What else should you consider before raising funding?
Understand where the business is going and what it’s trying to achieve. By understanding that you get the long term vision, then the relevant funding “bits” can slot into that model. The consistent theme of this discussion is don’t dive straight into the detail, work out the purpose and ask, “Why am I raising money, and what is the objective of raising funding?”
Is Capital Funding the same as Debt Financing?
Capital funding can be for capital projects, might be on a big fixed asset, a big machine etc. depending on your product or services. Debt Financing is a particular form of funding around the debtors of the business. When a business raises an invoice, it’s not in the bank until somebody has paid for that. There can be a massive gap before the invoice is paid, it could be a month…it could be two years. If it’s a long term project it could be a substantial amount of time before the invoice is paid. However it is an asset of the business and the business can borrow an advance payment of that invoice or a percentage of it. That’s how it typically works.
Within your role or your team have you come across any examples where raising funding has been crucial in helping the business go to the next level?
Yes I have, in some instances the business can’t carry on growing without the funding requirement, it’s a make or break decision. Some businesses need funding to survive, some need funding to grow. In both instances it’s the key determiner of whether the business will rise or fall. There’s an old saying that “cash is king”, if you can’t get real cash in you need to borrow that money as it fuels all the business operations.
Before you apply for funding, what are the key things that you would recommend to consider?
Work out the long term plan: What’s the purpose of the funding; has the business got credibility to go to a funder; has it got some assets and has it got security? However the most important thing, have you made all the internal things work (in terms of improving cash flow, debtors, creditors, etc.) before you go and raise finance? Raising funding often comes with a price. You have to pay interest, sometimes you have to give a guarantee, and the entrepreneur might have to secure their house against the law which is pretty scary.
If a company is looking to raise funding what is the best piece that you can give to them as a starting point?
Work with somebody who’s raised funds before and knows the whole of the market…i.e. an FD or CFO from The CFO Centre.
Find out how we have sourced more than US$7bn in funding for our clients and how we can help you raise funding fast.
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