Success or Failure
FINANCE 45
Success or Failure
Ready or not?
Are you really ready to finance that deal, asks Chatsworth Consultancy
The months have passed and you find yourself staring at a completed business plan wondering what next. It’ s one thing putting in the hard work and getting the plan written but implementing your business plan is when the real adventure starts.
Depending on the sector you are in and the level of experience you have, that start could be painstakingly slow or over in a flash. Hopefully if your plan is well-written with very good guidance for you to follow it should be your road map to success.
In the early days of a start-up( business) what people often don’ t appreciate is that too much success can lead to failure. I often have new entrepreneurs coming to me asking for help to finance a deal that was too good to pass up.
Picture the scene: a huge contract becomes available. You happen to be in the right place at the right time talking to the right person. Now the race is on to get your business up-to-speed quick enough to be able to exploit the opportunity.
If it was a boxing competition then it would be called punching above your weight. Stepping into the ring for a competition like this, however lucrative it may seem, has its problems as well. You may need to buy supplies, machinery, or employ new staff to fulfil the contract( all of which were not in your original plan). Your business is not in a position to finance the initial stages of the contract. Welcome to the world of turnover and cash flow.
Chances are you need to borrow money. Is the risk of borrowing money worth the contract’ s value? Is your customer going to pay on time? Getting your sums right is crucial to the overall success of the venture.
Assuming the answers to the above questions are positive, and you view the risk as a worthwhile one, you need to request credit facilities over and above any you may already have. In general, approaching a bank for this type of finance will follow a similar pattern to that of financing a new business, except you should already have a history with the bank. Do expect to be asked to provide projections, risk assessments, and so on. It is also extremely common to be asked to personally guarantee any finance you obtain. Thankfully, bank managers are human, and in general terms, if the manager can see you have done your homework and can see that the finance will enable your business to grow, you are unlikely to be declined.
One way to obtain improved cash flow and / or reduce the risks your business is exposed to is to operate invoice factoring. Factoring can generally achieve two things: insulation from the risk of a non-payment, or immediate cash flow( rather than waiting for a customer to pay), or both.
Bartering and revisiting your business investment opportunities and discussing the VAT and tax issues are all important considerations. Money is a tool, not a solution. As Bruce Cohen, personal finance expert and author of‘ The Money Adviser’, says:“ The point of the exercise is not to amass a huge mountain of money, but rather to be able to buy the goods and services you find meaningful”. Good luck.
Chatsworth Consultancy is a business consultancy offering business advice, coaching and mentoring as well as bid writing advice for small businesses and charities. For further information telephone 07891 720073 or email chatsworth @ consultant. com
ISSUE THREE 2007 engage | uk