With recent turmoil in the financial markets following the mini-budget, subsequent changes in government as well as the ongoing geopolitical and cost of living crisis there has been significant upward pressures on interests rates and the cost of borrowing with forecasts suggesting that this will continue for the remainder of 2022 into 2023.
Understandably, many businesses are coming to me for advice in this changing landscape about how best to raise finance, whether this is for business growth plans, refinancing existing debt or simply in an effort to provide funding to be able to keep the doors open in the hope of a brighter future.
It is likely that what is available in the market in terms of products, interest rates or even funders will have changed by the time this article is published (with the Bank of England Monetary Policy Committee meeting in early November) such that detailed commentary on types and costs of funding will largely be irrelevant and a fool’s errand!
Instead I wanted to highlight the importance of forward planning and underline the three basic, interlinking principles I advise clients on when discussing their financing needs. These are more important now than ever.
- What funding do you need, when do you need it and how will you repay it?
- The relevance and need to have good financial information.
Act in advance of the funding need.
The what, when, how?
Taking the first pillar of my three areas of advice, it is a fundamental principle to be clear about what funding requirements you need, when you will need it and how you think it will be repaid. Being honest and objective with yourself about the reality of the business needs allows you to plan proactively.
A funder will want to understand why there is a need for funding and being able to demonstrate this as well as how you will ultimately repay the funding being sought. Without this information at the outset, you as the business owner will not know what the requirement is and any funder will immediately raise queries as to your underlying management of your business finances.
The importance of knowing your figures
This leads into my second piece of advice, being the importance of underlying accounting information. Regardless of whether this is to identify a funding need, demonstrate the case for growth funding or to set out the affordability of finance being raised, without accurate data you will not as a business be able to fully understand your funding need and no funder will provide significant support.
Having a 12 month rolling forecast (profit and loss account, balance sheet and cash flow), setting out cash requirements, with more detailed 30 and 90 day cash flow forecasts will help to give you visibility on any funding requirements in sufficient time to be able to manage these with appropriate funding solutions – helping you to understand both the quantum of timing of funding needed.
Timing is everything
My final simple piece of advice is to ensure that you act in good time. If you are looking to refinance existing debt which is becoming due for repayment open dialogue with funders well in advance of this so that you can understand what the funder will require in terms of information (and underlying performance) is vitally important.
Proactive conversations ahead of a funding need further underline that a business is well run and increases the likelihood of a funder supporting your business needs. This can also allow enough time to speak with other funders to ensure that you have the most suitable, cost effective product for your needs.
The current market
My recent experience is that there remain plenty of funders within the market willing to do business, whether these are the mainstream banks, challenger banks or specialist lenders.
Increasingly funders are coming up with innovative products and alternative funding strategies to support well run businesses, such that if there is a need for funding, the current circumstances relating to the uncertainty need not be a barrier to obtaining funding.
Whilst, on current projections, it is undeniable that there are uncertain, more challenging times ahead the funders, brokers and general business community that I speak with regularly continue to be positive in regard to the funding outlook for business that follow the above principles and approach to managing and monitoring their funding requirements.
Finally, I would recommend as business owners that you maintain regular contact with your professional advisors about your finance needs. Whether this is to discuss upcoming refinance or other funding needs, implement better management reporting or to understand changes in the market and how these may impact on your moving forward.
At Rickard Luckin, our team of experienced relationship leads are having such conversations with our clients on a regular basis and are supporting them through the challenging landscape ahead.
If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch: