It’s vital the primary financial controller of the business takes a commercial approach to the different funding options available and how each will lead to improvement in the business performance.
With the Federal Government currently promoting innovation and risk-taking in Australia through support and generous tax concessions, it’s now more attractive to invest in Early Stage Innovation Companies (ESICs) and to obtain capital funding. Whether it’s a new business or an existing sustainable business, what funding options do you look at to continue to grow and expand your business?
Generally, SMEs seek funding through two sources, capital contribution from owners and debt financing with a corporate lending institution. SMEs tend to provide the last set of financial statements to their banker and hope for the best. Lenders will evaluate the business to determine the ability to repay debt. The healthier the business looks, the more the funding options available, and usually at better rates.
How can you avoid the pitfalls of seeking finance?
One of the key steps that businesses fail to consider prior to seeking funding is reviewing their credit profile. Whether you are seeking financing through debt or equity, here are a few key areas that will better your credit profile for lenders or potential investors:
Linking with the right investor may be valuable as you may be able to leverage off their experience and networks. Look for opportunities where the investors can add more value to your business. Consider whether you are able to leverage off their experience and networks (this is known as ‘smart money’).
You are the heart and soul of the business, and as much as you would like to work with a particular investor, they would need to want to work with you, too. Potential investors will not only be looking at the business opportunity but who they will be partnering with.
What other financing is available?
Besides larger scale debt and equity financing, your business may require short-term capital. For example, where you need additional funds to satisfy short-term cashflow requirements. This type of funding generally doesn’t require the same level of detail as above. Partner with an advisor who can help you to analyse your situation to determine what funding would best suit the circumstances.
Capital for cashflow management could take the form of one or more of these arrangements:
It’s vital the primary financial controller of the business takes a commercial approach to the different funding options available and how each will lead to improvement in the business performance and ultimately meets the requirements of the business and its investors.
Tony Nguyen, Manager – Business Services & Tax, Prosperity Advisers