Identifying the need for investment will help to alleviate short-term pressure and it can be the catalyst for driving your business forward. But how do you know when to start making investment for growth, and how can you best prepare for your funding journey?
While your business might not be ready for funding now, there are measures you can put in place now to ensure your business is in the best possible position when the time is right.
Read on for our four-point checklist for preparing your business for funding.
Why is preparation important?
Preparation is key when it comes to any business funding application because it:
- Makes the process easier and saves you precious time
- Helps you to negotiate the best deal with a lender
- Means you’re clear on how and when you will invest the funds and service the debt
- Gives you a greater chance of success in obtaining new funding
Step 1: Update your cash flow forecast regularly
Before looking for external capital, you should make sure you’re managing cash effectively. Being able to demonstrate good cash management sends out the right signals to potential investors or lenders. Providing an up-to-date cash-flow forecast is an essential component in any funding application, particularly in a growing business.
Make sure you understand the amount of cash and working capital required to operate the business. While you don’t need to go too in-depth, you should cover the key aspects of your business, for example:
- Review stock levels and work-in-progress levels
- Issue sales invoices in a timely manner
- Review contractual agreements with suppliers
- Considering using finance to reduce upfront capital expenditure
- Use automated payment methods with your clients
Step 2: Prepare a solid business plan
A robust business plan is important for securing funding as it helps potential lenders or investors understand your vision and goals for your business. You’ll also understand the risks of your strategy and the impact of any deviations from the plan.
Every business plan is different, but here are some key elements to think about:
- Executive summary
- Who are the key personnel and what is their level of experience?
- Market analysis
- Current and intended client base
- SWOT Analysis (strengths, weaknesses, opportunities, and threats)
- Competitive landscape
Step 3: Gather your documents
Having a clear purpose when borrowing and complete documentation will save you time and headaches when submitting your application. To put you in the best position to find finance, there are a few documents to consider that lenders typically require.
- Latest accounting data
- Last 3-6 months bank statements
- Last full year turnover
- Last full year profit (after expenses, tax, etc.)
In addition to cash flow forecasts and a business plan, be prepared to share supplementary information with potential funders. Typically, you will get asked to provide bank statements, management accounts, forecasts, and VAT or tax returns.
This may change depending on your lender or the type of financing you’re applying for.
Step 4: Right place, right time
Finally, knowing when your business is ready to make the most of funding opportunities is vital. Ask yourself the following questions:
- Are you missing sales targets because your team can’t cope with demand and could do with extra help?
- Do you need to invest in new systems and technology to keep up with the competition?
- Do you need to boost your cash flow due to new client contracts?
Knowing your business is in the right place for funding will help you to present a compelling case for funding. Impartial advice is essential when exploring your business finance options and getting ready to apply for loans or other avenues of funding.