Funding a business

Whether starting a new entity, supporting a struggling enterprise or funding a growing business, obtaining working capital is crucial. But funding a business in any climate can be tough, and never more so than in 2010.

In today’s financial climate lending criteria is tighter than ever and there is no longer any grant funding available due to the public sector cutbacks.

However, it is still more than possible to obtain funding to help your business. There are plenty of companies that become very successful despite their early years being forged in difficult economic climates. Think of Microsoft.

But how do you convince a bank, venture capitalist or private investor that it is a safe bet for them to invest in your business in the midst of the worst financial climate for decades?

Consider the following five tips:

1. Run Rate: make sure you know your current run rate. By that I mean your profits in the last quarter and what do they look like on an annual basis. This is critical to lenders who now almost ignore your historical accounts as the markets have changed so quickly. What you are making now is all important.

2. Management accounts: it is vital to have regular and reliable management accounts systems, routines and forecasting capabilities to attract further funding. This convinces the lender that your calculation of current run rate is correct and that your forecasts have previously proved reliable.

3. Non-exec: attract an experienced non-exec director who knows your industry even better than you, and will be a valuable asset when meeting with banks and other funders. Even ask the bank to recommend one as part of your lending application. Once they have joined you, hold regular management / board meetings to keep the momentum going.

4. Your accountant: secure experienced business advisers. For a small business a good accountant will be like an extra member of staff, able to offer advice on everything from the best accounting package to sourcing that all-important funding. The days of 2007 with no arrangement fee and base plus 1 per cent are gone, but a good adviser will know where to go, and who to speak to, to get the best deal for you.

5. Your business structure: there has never been a better time to sit down with your board and business advisers to make sure you have the right business structure in place i.e. unincorporated or a company, or companies with a holding company. Legislation and business practices are a complicated field, and there have been so many changes recently to try to combat the recession. Getting the right structure will reduce your tax bill, enable you to borrow more, protect your assets and enable you to pass the business on to the next generation.

Pierce has consistently found, even during the recession, that if you explore the above criteria there is always funding available for a good business idea, delivered well and with a good business plan in place for the future.

John Green, chief executive, Pierce.