Lessons in finance

Applying for funding can be a nerve wracking experience. But with careful planning you can maximise your chances of getting what you need.

The first step is to be realistic. Chasing sources of funding you have little chance of securing will not only dent your confidence – it will also take up time that could have been better spent on the business.

If you are applying for a grant, estimate how much time you will spend on the application process and what that time would be worth to the business. If you can find out what percentage of applicants are typically successful this will help you decide whether it is worth pursuing.

No room for false modesty

A realistic payment plan linked to cash flow forecasts will help funders understand if the amount requested is affordable. But this doesn’t mean you have to be humble in your approach when seeking money either from a bank or a private investor. One of the most common mistakes made by first-time fundraisers is not asking for enough money to take their business through to the next phase of growth.

Another potential pitfall is accepting an offer without properly checking the terms and conditions. Some contracts may prohibit the business from borrowing from another finance provider, while if you are offered a larger facility than required you need to make sure you are not charged for finance that is not being utilised.

Make it personal

When approaching a bank or investor it is important to personalise your approach. Make sure you have done your homework and ensure your business matches up with the core criteria and region of your target investor.

Give yourself enough time to prepare detailed information and to explain what the funding is required for and what it will achieve – different forms of funding are appropriate for cash flow support, capital expenditure or business growth. Work out where the funding should take the business as this will provide clear business targets going forward.

Don’t leave it too late

The need for funding should be flagged early by good financial information. If the need for funding is driven by a fundamental flaw in the business (for example, overheads are too high, margins are too low, or the target market has changed) it might also be a good time to look at the overall health of the business, perhaps with input from an independent observer such as an accountant.

When businesses wait until they reach a cash flow crisis to seek funding they make bad decisions and usually end up having to take whatever is on the table rather than the form of funding most appropriate for the business at its current stage of development.

Finance providers and investors will expect business owners to demonstrate a robust understanding of their cash flow needs when applying for funding. Using a cloud-based accounting solution such as Big Red Cloud will give you this level of insight.