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What our members have to say...
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"DONE DEAL: Best Sites 4 U. I purchased a proposal package from you originally for £149, and was fortunate enough to receive interest in my proposal within a day of submitting it. I am pleased to say this initial interest has now developed into a business deal, and I have received an Angel Investor who now owns 30% of my company."
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Mike Haywood - Best sites 4 U |
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Funding Your Company In a Recession
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A small business owner friend of mine went to see their bank this week. I asked how he found their bank manager. He replied, “Petrified with fear”.
It is easy to understand why. The economy is in a mess, and apparently it is all the fault of the banks. Despite this not being the personal fault of the lowly branch manager, many of them are deeply fearful for their jobs, and the last thing they have on their mind is lending money to anybody unless they have significant collateral.
So where do small businesses now go to fund their growth? Many people will delay the process until the recession ends and look at reducing their costs instead. While this is a sensible and prudent approach, it is potentially risky as it leaves you open to more aggressive competitors, or even your chosen market quietly moving on to pastures new while you wait for the economy to recover.
But if you were thinking about growing your business, it was because you identified a new market opportunity or were simply responding to increased demand from your customers.
This is where the best solution to your funding challenge lies: with your existing happy customers. They appreciate your products and services and do not want you to go bankrupt. If you ask them nicely they might place some new orders or suggest new ways that you might provide additional value, especially new services, which require minimal up-front investment.
For companies under twenty-five people, doubling your revenue within a reasonable time-scale is a realistic target, but it does require everyone in the company to be involved in the sales process. I now spend most of my own time running sales workshops for not just the salespeople, but for everyone in the company. I concentrate on improving their ‘farming’ skills, how to get more out of existing customers.
The point of these workshops is clear: those companies that do manage to double their sales will not be affected by the recession. Plus, you are much more likely to be able to arrange a new bank loan with a full order book.
But what if f you do need up-front investment to grow your business? Venture capital companies are now much more risk-averse than they were before, and I am even being told of whole funds that have been withdrawn in the last few weeks.
For businesses looking for under a million pounds, the climate is not as difficult as it might appear. Angel investors are still looking for higher-risk investments; the funds they had for this a few months ago have not suddenly gone away.
This was not money they had set aside for their old age or their children’s education; this should be ‘fun’ money, something that gave them the chance to be personally involved with interesting people who remind them of their own halcyon days as entrepreneurs.
Investment decisions will be subject to more scrutiny than before, so angel investors are now concentrating on companies where they know the principals. It is important that if you do not personally know any angel investors, you find yourself a non-executive director who does.
When raising any amount of investment, the process should be relatively swift. The investor should understand what you do quickly; some even have been known to write a cheque on the spot. You should avoid anyone who favours a long drawn out process; this is often used by manipulative investors to improve the terms, effectively starving the investee into submission.
Another place to look for inward investment is from your strategic customers, but this is a time-consuming and potentially dangerous exercise, and may affect your ability to sell to others, especially their competitors.
A recession is a great time not just to start, but also to grow a business. The ultimate proof of your out-performing the market in a recession is a full order book; this will make your next trip to the bank manager much more pleasant. Ironically, they will then probably offer to lend you money that you do not need, which you can politely decline.
But a full order book is one half of the equation; there also needs to be someone keeping a close eye on costs. If you do not have this person working full-time in your company, now is the time to find one.
If you actually like your bank manager and you feel they understand your business and can add value, why not offer them a job?
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