Most businesses follow a path from start-up, to growth, to maturity and then to exit. This may take 3 months, 3 years or even 30 years. Of course, each business and each entrepreneur is unique. Your default position, however is often to generate internal capital by remaining profitable. Recognising where you are on this journey and where you are heading is critical to understanding how we can support you further with additional advice.
Start up Phase
Whilst ‘sweat equity’ is a key part of the start-ups capital journey to achieve some market penetration, you also need to bring in external finance to pay your day-to-day bills and fund that growth. It can be difficult to raise some forms of debt finance unless the business can provide sufficient security and demonstrate serviceability. Your business may need to raise equity finance from friends and family or business angels where tangible security will not be required. As you begin to trade you can consider which of the debt funding solutions are accessible to you. As you grow your business, if you are creating new products or services and undertaking research & development, you can take advantage of the tax reliefs available for that investment where possible. One of our roles is to help our start-up clients to set up your accounting and management systems to ensure you can obtain the data which will guide you through your decision-making processes as your business develops. Before you purchase assets you should consider how best to fund them and the tax implications of each. Businesses may seek acquisition opportunities throughout their lifecycle and strategic mergers may provide synergies and other faster growth opportunities. Business owners should operate their business with their eventual exit in mind, even when first trading.
A key challenge for any growing business is funding that growth and not overtrading and running out of cash so not being able to meet your liabilities. Working capital from debt facilities should be more accessible at this stage but if the business is fast-growing then equity investors may wish to take a stake in the company to scale it quicker. Businesses experiencing growth need access to accurate information. We will also support you in setting up systems and processes so that the management team’s decision-making can be effective. Understanding how your business’ stability is perceived by stakeholders such as suppliers and lenders can help you to obtain better trading and financing terms. Growth by acquisition is generally faster than organic growth, so an ambitious and savvy business owner may choose this route. Investing in R&D and assets will continue to bring tax reliefs. An offer to buy a business could arrive at any time so a business should always be prepared for that possibility.
As a business matures, it may need to adapt its operations or systems or set out on a new path with marketing expenditure. Deciding how to best fund these investments is crucial. We will encourage you to question whether to use existing cash reserves or bring in external capital and this will depend upon the expected return of investment and opportunity cost calculations. Once a business has a stable track record, lenders may be willing to offer highly attractive terms. Management teams may decide that access to this greater source of capital from external sources is a cost worth incurring if it can provide them with the resources to continue to grow the business again by expanding or diversifying. As a business grows to scale then inevitably some detail may slip through the cracks. It’s crucial at this stage to ensure information systems remain slick and effective to support decisions. For example, credit control processes remain as important as ever and advisers can ensure they are operating well. If a management team wish to keep growing the business even further, an acquisition could provide new directions or opportunities. As a business owner gets older, they should be considering their exit plans and potential routes for an eventual disposal.
We have joined Capitalise to help us to help our clients source and obtain the most appropriate funding available for them.
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