When raising finance for your business, it probably goes without saying that there’s a certain amount of maths involved.
Any professional provider of finance is going to ask you how you arrived at the amount of finance you’ve requested. The number is usually derived from a cash flow forecast that shows the gap between what you have available and what you need. We view this gap as the minimum amount needed. It’s the minimum because any forecast is a series of educated guesses and the further into the future it goes, the further any forecast moves from the known into the unknown.
At NEL, we like to see a contingency on top of this minimum. It’s very common for a growing business to say to us they need £200,000 and, following our review of the forecasts, we suggest they may need £220,000. This usually surprises business owners because it’s a common misconception that investors will provide only the minimum. However, we would much prefer a business is properly funded than put their plans at risk for the sake of a little bit more, just in case.
Taking in external finance is a big decision for a business, and in addition to the initial number crunching it requires a certain level of gut feel.
To gain comfort in what the business can afford, try breaking it down into what the monthly cost is going to be. We can easily give you an estimate of the monthly amount so you can decide if that’s a manageable number.
You may ask what happens if there is a bump in the road and you have a tricky patch. We normally invest unsecured. This means we are as worried about those bumps as you are, but we have a dedicated portfolio team here to guide you on steering around potential problems. The same is true for when your growth plans go really well as you might find you need some more funding. You can ask any funder how they would feel about putting in more later.
It’s important to say that you don’t have to make these decisions alone. We all need help with a major step. This could be from within your team or from an independent voice. There’s no set solution as everyone’s different. The important bit is having someone you trust and knowing that they have the knowledge to help you with the decision. Deciding whether it’s a gut feel problem or a maths problem or both helps you decide who to ask.
Its normal for people to approach us with most, but not everything, in their plan worked out and to have questions about the ‘what ifs’. Putting off seeking funding until you have a perfect plan isn’t necessary and can hold back your business from growing. If you need some advice but don’t know where to turn, we can make some suggestions of independent people who may be able to help.
To discuss this further please contact us on 0345 369 7007