6 Factors limiting SMEs from achieving their financing ambition.

In the world of business funding, startups appear to be well catered for through angel networks, crowdfunding campaigns, pitching competitions and more. Private and Corporate investors are keen to tap into new skill and innovation that would expand their own profitability and productivity. Great news for startups – but things start to change when these businesses “reach development capital stage – with a viable, revenue- generating concept and a clear line of sight to profitability.  Business owners struggle to raise capital to fund business growth,” says Alison Coleman, a business writer with a keen interest in the growth of startups, entrepreneurs and small businesses. 

So just what is it that holds SMEs back from reaping the rewards of, not only business funding, but growth potential?

We look at 6 limitations holding SMEs back from uncovering their exponential growth and investigate ways to find solutions that work for you.

 

I don’t want to be in debt

The fear of debt is a big challenge to many SME owners who have built their business to such a point that, without the right capital input, their business will plateau and any hopes of sustainable growth will dissipate.

Traditionally, SMEs have been nervous about pursuing business funding from banks and other lenders simply because of high interest rates, the hassle of setting up a new borrowing facility, terms and conditions tied to the deal and security demands from the lenders themselves.  They’ve built their businesses up from the point where every penny they invested was checked and accounted for. In a study conducted by YouGov of over 1900 SME business owners, one in three preferred securing business funding outside of traditional routes, with one in five actually securing funding from private or angel investors.

The same survey demonstrated that an increasing number of SME owners were running their businesses through their own bank accounts, specifically to avoid fluctuating market struggles and lending insecurity.

  • We say:

For many, fear is simply not knowing. And in the case of fearing the prospect of being in debt, it could simply be because you feel like you have no other option. Your lender is telling you what’s available to you, in black and white, and even armed with the best negotiating skills, you feel that you still don’t have any leeway to make something work for your business. If you’re unsure about business funding the traditional way, perhaps it’s time that you start to research other options that may be available to you. Most lenders are sympathetic towards small business owners – and it’s in their remit to be able to grow, through your growth. Having an open, honest conversation about where your business is going, is critical to securing not only business confidence, but any hope for exponential growth – whether you’re looking to secure funding from a bank, a corporate venture fund or an angel investor. Anyone who invests into your business, will want to see rewards – so explore what those rewards may be – and find opportunities that may suit.

 

I don’t want to give up equity

A hugely debated topic – most business owners are not prepared to give up equity, for the sake of capital investment. But there comes a point where equity becomes your hottest negotiation tool. Sustainable, growing businesses, especially those in the middle market, are in the best position to grow further. They have strategic assets they can leverage, they have the organisation and tools to sustain growth, they are more nimble than their larger competitors, and they have more strategic choices in front of them than small or large businesses.

  • We say

Most of the time, high-growth businesses will attempt to self-fund their growth through their own, existing, secure, cash-flow. But there are often cases that support pursuing outside funding, to deliver exponential growth. And in these cases, weighing up the growth opportunity with equity negotiation is an avenue that works for many. The solution is finding the right investor for your business – someone who shares your growth vision, who provides an opportunity that matches your company culture and works in partnership with you and your management team to secure a sustainable future.  If you’ve proven your business model and it is eminently scalable, or if you risk losing your competitive advantage by forgoing growth opportunities, finding an investor that is able to work with you from the onset, is critical.  It’s not about relinquishing control – because for many, that needn’t be necessary. It’s about finding the right opportunity for growth that will springboard you, and your business, towards new and exciting market opportunities.

 

I don’t actually know what options I have

This is a classic example of business insecurity that we so often see in the market, and we’ve written about it often before. You’ve probably built your business from the ground up – you can still remember the all-nights you pulled, working through some of your first presentations and proposals. You remember your very first customer and you probably remember the excitement at moving into your first office space – even if it was a shed in the garden.  Which is why when it comes to finding the right funding for your business, many SME owners shy away from the prospect, simply because they don’t know what’s available to them.  Alternatively – you may know what’s available to you, but you simply don’t know where to get started, and whether the option you think is right for you, actually is.

  • We say

That’s when the right business support comes into play. We’ve seen businesses be set on a clear funding path that they felt was right for their business – but they’d get to a point, beyond the point of return, that they’d wake up to the fact that the path they pursued was doing more harm than good. Whether they’d chosen to become a publicly listed company, or whether they’d borrowed from a lender that wasn’t quite aligned to their business vision – they’d become stuck – and turning the ship around became an almost-impossible feat.  Working with experienced business teams who know the market, have a network of various kinds of lenders, and who truly understand the challenges that you, the business owner, faces, is paramount to forging a growth path that works for you. But it’s more than that – forming a partnership with business support that is able to remove rose-tinted business ideals from reality means that you have an even better chance at long-term success.

 

I’m not sure I’m ready

Not being ready, and knowing you’re not ready are two very different things. And it’s the knowing part that we applaud.  While the opposite is so common where business owners develop an invincible approach to long-term sustainability based on the successes of today, many come unstuck through thinking too big, and moving too quickly, without the right sense-checks and balances in place.

  • We say

Undertaking any sort of growth initiative – through capital investment or otherwise – is a huge commitment – both to your stakeholders as well as your teams, and is never an activity which should be done carelessly or without the right amount of preparation. Most businesses who undertake some sort of fund-raising activity spend a considerable amount of time getting their so-called houses in order; they shape up their operational infrastructure, they sense-check their reporting structures, they test their scalability, they ensure their teams are equipped and agile enough to handle sudden change, and growth. They are ready and their risk is managed – even before they have received the first payment into their accounts. Investors want to see responsible due diligence if they intend to part with their capital – and hope to see any chance of reward.  Exploring funding opportunities with the right business support means that part of the process is to test and ascertain your business’ level of readiness for funding – and where there is room for improvement, work with you to get your teams ready – with a stronger chance at investment success.

 

I’ve been burnt before

We’ve alluded to this in one of the previous points. Unfortunately, the business landscape is littered with funding failure stories of businesses who tried to do more than they knew how to. Some were subjects of an investment fad (like the well-known Dutch Tulip Craze), some were victims (or willing participants) of fraudulent reporting (can anyone say Enron?), others ignored the signs and missed out on digital disruption by thinking that the dot com era was just a phase (Pets.com), and others simply burned through the cash before they should have. For many, though, they may have not been ready, and pursued funding with an investor who was not the right match for their business, and their business vision, resulting in a soured relationship and an adversity to any future capital growth.

  • We say

Things don’t always go according to plan. Mistakes happen. Everyone, at some point in their life, has made the wrong business decision or followed a path that distracted them from success. But we say that your past should not be something that defines you, unless you use it to positively build your future – and something that forms a critical building block to how you tackle the decisions you make from now on. We understand that you may be hesitant to explore an avenue that previously resulted in failure – which is why it’s important that you work with a partner who understands, has walked in your shoes, has been responsible for their own business growth – and who is able to identify the right path that will improve your prospect to second-time success.

 

I can do this myself.

Trying to tackle any type of growth strategy on your own is brave. Note – we didn’t say “ridiculous”.  We said brave. Many have attempted this, few have been successful, but many have come unstuck and have had to call in support – often when it was too late already. This is especially true for those who have never been through any type of growth initiative or fund-raising exercise before. There’s only so much about a person’s experience you can gain from books – the rest relies on actual experience (either yours, or someone who’s been where you are, and is willing to help you). Encouragingly, in a survey conducted by SAGE, most entrepreneurs surveyed acknowledged, or relied heavily on, business mentorship especially when it comes to business growth funding.

  • We say

At some point in your business’ life – there will be a time necessity dictates specialism over control – where you make the decision to find the right skill to match the right function to empower your growth plans. For many who think they can do this on their own, we salute your self-confidence. However, look at most business owners that today represent the definition of a true growth-orientated mindset – you’d be hard-pressed to find anyone who, at one point in their careers, didn’t need to rely on the guidance and mentorship of someone they respected. It’s not admitting fallibility – it’s being smart about your growth strategy.

 


Our team has worked with SMEs who are ready for growth, for over 20 years. We understand the fears you face, and the challenges that you deal with. We also understand what investors are looking for – which means that we speak the language of both investor, and you.  We are best-placed to help to set your business on the right path for growth – whether it requires an urgent turnaround, fund-raising or whether you simply need someone to identify growth readiness – talk to us today about setting your business up for long-term success. 


 

2018-06-18T12:29:03+00:00June 18th, 2018|News, SME Growth|Comments Off on 6 Factors limiting SMEs from achieving their financing ambition.