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Business funding strategies for challenging markets

With Australia’s economic indicators looking eerily similar to the leadup to the Global Financial Crisis, securing business capital can be a real battle. 

As credit conditions tighten and interest rates settle to a historically average level, leading Australian business growth and turnaround specialists Vantage Performance have seen a spike in businesses finding it harder to put in place the funding they need.

Vantage Performance works nationally with fast-growth or troubled businesses, helping them fund working capital, right-size operations and implement strategies to solve critical business challenges. Vantage’s Director of Corporate Finance, Tom Hession, said there are actions business owners can take to have a better chance of successfully attracting investors or getting finance approved. 

Getting your business “finance-ready” 

Mr Hession draws on his three decades of mid-market banking experience with the Commonwealth Bank and ANZ, assisting clients with complex credit and high growth situations, to outline what it takes to be finance-ready: 

  1. have a robust business plan and a 3-way integrated financial model 
  2. submit accurate, up-to-date financial records (give funders easy access to key information) 
  3. position the business to have options of securing funding from diverse sources 
  4. foster strong relationships with funders (don’t underestimate the power of consistent communication with a ‘no surprises’ mentality) 
  5. leverage expert advice and assistance to structure, compare and negotiate better outcomes 

He said having a robust business plan means you start with the end goal in mind and the strategy to be successful, not with an ask for funds. “Once you have set strategy, you can then work out the operations and resources necessary to execute it, including a detailed 100-day plan that is actively project managed – only then should you look at capital-raising,” Mr Hession said. 

“Funding from investors or financiers is not a ‘one and done; it’ss an ongoing relationship through the ups and downs of a business cycle. That’s why the goal is not just to secure funding, it’s to forge a sustainable relationship that gives your investor or funder the confidence to back you. 

“How much risk you’re willing to take on will help determine the appropriate capital to fund your strategy, whether you should be looking for debt and/or equity or something structured in between. “If you’re clear on these things, it’s much easier for an investor or lending institution to see if your business is a good fit – and if not, they’ll be able to say so quickly so you don’t waste your time.” 

Critical issues many businesses don’t consider 

Cost is what most businesses typically focus on – but cost brings restrictions, so the cheapest funding is not necessarily the best funding for you and your strategy, Mr Hession said. Time is another consideration: how quickly do you need funds, how much do you need, is there a certain amount you need to plug a gap? Having a clear understanding of the purpose of the funding, how long you need it, the security that’s available on offer, the terms and undertakings, is crucial, he said. 

Do you want, or are you happy to forego, dividends and distributions? Maybe you can’t and it’s a non-negotiable! What’s the capital markets environment like, is liquidity tight because banks are focusing on a particular segment that they know better rather than chasing higher risk segments? What’s the risk if things don’t get better and there is a default under covenants – how personally liable are owners and directors, is your home and family lifestyle at risk, can you sleep at night? Listing out all the considerations then focusing on the top two out of three priorities will help you have clarity around your funding need, Mr Hession said. 

Invest for success 

Presenting potential funders with three-way financial modelling on your business can be just what it takes to get a funding request over the line – especially if the assumptions are realistic and most importantly backed by a credible management team with a proven track-record. 

“Three-way financial modelling on profit & loss, cashflow and balance sheet is absolutely critical. This modelling should integrate the various covenants and undertakings that a financier wants to see and allow you to run trading scenarios based on upside, business as usual and how you might exit or work through challenges if the market takes longer to recover,” Mr Hession said. 

With this level of integrated modelling, changing one or a number of inputs creates various outputs that provide data critical for funders to understand what that business looks like if you change the growth rate or the cost base or take out dividends or borrow more than what’s necessary. Choose a specialist business expert trained in cash flow forecasting to do this modelling (not necessarily just your local accountant). Many businesses find it hard to outsource creation of this modelling, but it should be an easy decision to make, giving you the best chance of gaining funding, and saving you the time-consuming and onerous task, giving you more time to work on the business. 

Make use of free tools 

There’s an easy way to see if your business is resilient enough to attract funding, and to see how your business compares against leading businesses from around the globe who have gone through previous recessions and survived. The Vantage Resilience Index (VRI) is a free resource that gives an accurate assessment of how resilient and viable your business is and what areas you need to work on – without you having to input any financial data. 

Mr Hession said Vantage is already working with Australian bankers providing VRI scores for companies to give the banks level of comfort about financing businesses.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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