Managing a Business - The Finance Perspective

Part 3  —- Financing the business

You have created the management accounts, the forecast and cashflow forecasts and now you are ready to step back and look at the business from a strategic viewpoint. 

There are several questions that need to be answered and these can be simplified down to one very direct one.

Is the business going to achieve the income the owner/manager desires in the allocated timespan?

This could simply be a modest income or it could be a factor of multiple times the current one. The end goal is dependent upon the owner's unique circumstances. This article assumes that the business has been operating for at least two years and is looking for growth and increased profits.

There are several steps involved in this review.

1. Maintaining the current position

This is the starting point of any review.  How much will it cost just to stand still? 

What is the life expectancy of all the assets, be that motor vehicles or bespoke equipment? What is the replacement strategy, timeline and expected costs? Are there any new technological advances or changes in customer requirements that will affect these decisions? Is the workforce level appropriate and are there any indicators of change?

Once that is identified and calculated then we have the baseline expenditure. This is how much you need to spend just to maintain the current position.  These questions should have been covered off during the forecast exercise, but it is useful to review them as a stand alone exercise. This serves to highlight the cost of standing still in an unambiguous fashion to the owner/manager.

2. Growth Strategy

This is normally determined by the end goal.  What growth is required to reach that goal? What does the business need to do to achieve this growth? Once again this is directly affected by the individual circumstances of the business. 

What will the growth look like? Is it just better equipment, or is it additional equipment? Will this equipment fit in the current workspace? Where will this growth be found? Is the business expanding into new markets? This can be either geographic where the area covered is simply expanded, or by looking at a whole new market. If it is a new market does the business have the capacity to serve it and is it a new product or an evolution of the current offering.  

All of these questions need to be considered and decided upon. 

3. Financing the Growth

We have now reached the end of the first phase of the growth strategic review. We have decided what our growth will look like and over what timescale. Now comes the second phase.

The key question here is how the business will pay for that growth. All growth generally has a cost. That cost can be cash or time or a combination of both. If the owner is happy to sit back and grow gradually over time, then whilst he is not incurring the cost of say a marketing campaign, it could be argued his cost is the potential lost income.

If however the owner/manager has defined strategic goalposts then it is likely that an injection of capital is required. This can be as simple as the owner/manager investing their own funds or looking to raise finance.

As a Fractional CFO, I can give generic advice on the types of finance available and the cost and contractual implications of each. Whilst assisting with a bank loan is within my abilities, I am not positioned to engage much beyond that. This is where the Finance Broker comes into their own.

4. Finance Broker

A Finance Broker  has access to the whole of the market and a wide panel of alternate funders who typically come with a stronger appetite for risk in comparison to more traditional lenders like the banks who tend to be more risk averse. 

The Finance Broker will sit with the owner/manager and go through the business needs as identified by the recent strategic review. His role is to recommend a finance package and assist with obtaining it from the appropriate source. The CFO role here is to ensure that the owner/manager is fully aware of the cost and legal implications and also to assist with answering any question the broker may have.

5. The Position moving forward

The next article will focus on the actions that need to be undertaken once the finance is in place.

For a free initial discussion on the above article and to find out more , please contact me on [email protected] or call me on +44 7 306 162 553.

Fore a free initial discussion on the types of finance available please contact Adrian Solomon of Statscap on [email protected]  +44 7 961 802 821