The changing face of finance
Lancashire Business View and Rosebud, the business finance arm of the county council, brought business leaders and funders together to ask how the role of finance is changing as they look to meet the challenges thrown up by the Covid-19 pandemic.
Matt Robinson, Rosebud
At the start of the year we were really active and then the pandemic kicked in and everything shut down.
Then the government schemes came out, with people looking for those funds to keep the lights on, to pay wages, to keep trading. There’s been a huge uptake on the Coronavirus Business Interruption Loan Scheme (CBIL) and Bounce Back loans.
In recent months things have transformed from people needing the funds to keep trading, and we’ve seen businesses use funds for growth reasons. They’ve been impacted by coronavirus and they’re starting to use it creatively.
- Richard Slater, Lancashire Business View (chair)
- Rob Binns, Cotton Court
- Mark Gibbons, Access to Finance
- David Gill, Centaur Technologies
- Brian Heyes, HSBC
- Jessica Jackson, GC Angels
- Nadeem Memon, Panaz
- Matt Robinson, Rosebud
- Richard Stephenson, YUDU
- Kevin Steven, Pierce
- Andy Wilson, Abbey Telecom
It changed from ‘keep us trading’ to ‘how do we react to the situation, pivot and make the most of it?’
When it comes to funding it depends completely on the situation of the business involved, there’s no one-size fits all. For some, the government schemes are around until the end of November. In some cases, equity will be more suitable, it really depends on the business and what they’re looking to achieve.
Rosebud is all about supporting Lancashire businesses that are going to have a big impact on the county, so we want to fund and support businesses that are expanding, possibly going into new markets, the people who are creating jobs. We back management teams and we buy into the story. As long as that story makes sense, we can buy into it.
Brian Heyes, HSBC
The last six months have been interesting times for anybody that works in finance.
CBIL was effectively economic oxygen, it had to be considered and approved on an affordability basis because the banks didn’t want to put a load of debt out to customers that couldn’t afford it. It is not grant funding.
One of the biggest challenges I see coming is that a lot of businesses that have taken CBIL debt are leveraged to the hilt now.
They’ve took on debt to plug a hole, that economic oxygen, and the challenge we have is that, because those businesses have been stagnant for six months, they now need inventory, they need to start trading. Working capital is going to be the biggest challenge.
So, that’s the next challenge for the financial world, to work out how we support businesses with that phase. That’s where overdrafts, trade loans, stocking finance, all types of our working capital solutions come in to play, certainly from a conventional banking perspective.
When I grew up, we used to assess business opportunities and plans with the ‘CAMPARI’ analysis, which is ‘Character, Ability, Means, Purpose, Amount, Repayment, and Insurance’.
You’re looking for a well-structured transaction that allows a bank to follow the money, to understand what our lending’s been used for. A well-presented plan, with reasonable assumptions.
We want a good share of risk; a deal has to be affordable and importantly, the management team has to show credibility and experience; and there’s got to be a decent return for the bank, as well.
Kevin Steven, Pierce
While some businesses have thrived, by and large, balance sheets are weaker for the pandemic. It’s not simply a case of senior debt that’s causing those issues, there’s some fairly chunky PAYE, VAT, corporation tax, time-to-pay schemes.
Our sense is that while the schemes such as CBIL have been quite successful it’s largely been a sticking plaster.
While management have got much closer to the business, they really need to look at the structure going forward and how sustainable it is.
A number of businesses are sitting on cash at the moment, for the benefit of additional facilities. Working capital has unwound and the balance sheet looks relatively healthy at this point, but as you project forward, that cash erodes quite quickly.
When you look at real cash and sustainability, we are concerned that a number may be over-trading going forward, unless they’ve got the right debt structure in there.
We work hand-in glove with management teams. You very rarely see a business with a bad Plan A. The really good businesses have a good plan B, C, D and E.
One of the challenges for SMEs is what does next year look like? We know there are challenges coming, but how far does this pandemic go?
I would advocate business and funders alike to build in some flex. ‘How far can it go? ‘What options do you have?’ and ‘How do you control the position you're in?’
Mark Gibbons, Access to Finance
Like all businesses we’ve had to address the way we work. Traditionally we’ve tended to focus on B2B business. But given the pandemic we decided to throw the doors open a little wider.
Normally you would endorse the taking of debt, or equity investment, to support growth, but given we’ve seen a lot of businesses struggle due to the pandemic and we’ve been looking at the government-backed schemes as one way to support businesses.
We’ve also looked at what other mechanisms they can use to retain cash. There were a number of grant schemes deployed through local authorities and growth hubs, there’s support around VAT deferrals. Also, maybe striking repayment plans with lenders or landlords
I was going to try and avoid the word ‘pivot’ but we've supported ingenuity. Businesses have had to adapt, maybe change their service offering or product. The old adage goes, ‘Necessity is the mother of invention’ and we’ve seen that with a lot of businesses we’ve supported in Lancashire.
From an equity point of view, we know lenders and investors are keen to understand the management team, but they also want to understand where the exit’s going to come from as well.
From a debt point of view, whether it’s alternative finance or bank debts, the viability of the business is important and of course debt serviceability.
There is a great financial ecosystem in Lancashire. There is good advice and support and good investors and funders out there.
Jessica Jackson, GC Angels
We are an early-stage investor. We take a percentage stake in the company in exchange for the cash that we put in, with a more longer-term view than other debt products out there.
Our fund is focused on innovation, with a strong domination on tech, which spans through many sectors these days including e-commerce.
We look at the management team’s strength, have they got the right skills around them, does their plan make sense? Ultimately the business plan they present will not be what happens in reality, what we’re trying to assess is if they have the resilience and right mindset to deal with whatever comes.
It's only in the last couple of years that we’ve seen VCs and private equity houses move out of London and base themselves here in the North West, and by that it’s generally central Manchester. They don’t tend to do a lot in terms of business development are awareness-building in communities, it is not their nature.
It’s a ‘they will come to us,’ model which brings with it a wealth of issues in terms of diversity in every sense that you can think of.
When you look at the Angel market, high-net-worth individuals who tend to support businesses at this stage, 57 per cent are based in London and the South East, with 20 percent of them in ‘the rest’ of England.
What that means in practice is the majority of deals get done in London, and the wealth stays there.
Nadeem Memon, Panaz
Finance has changed dramatically. The norm for most finance directors was to look at historical information. We’ve changed that, we look at data analytics, we’ve invested in technology.
We look at future business and pipelines and then realign that with our strategy, in terms of what cash we expect coming in and in terms of turnover and profitability.
Using that model has helped us to invest in areas of the busines, and diversify our product range. Most importantly, we have invested in supply chains, something which many businesses don’t do. And that has helped us during the pandemic.
We’ve got dual supply chains now that we put in place two or three years ago. So, if, for example, China is not available, we can go elsewhere. There’s also vertically aligning the supply chain, buying your supply chain out or investing in your own systems and processes to mitigate any issues or risk for the businesses.
We’ve got sound IT systems in place and I model about five or six different situations for the business. It helps us to buy better because we can look at the horizons of forward-buying. It’s helped us buy just-in-time, rather than build stock levels.
We’ve had various sources of funding. We’ve been pretty lucky because we are quite cash-rich, but we have utilised the CIBLs loan facilities, and we’ve been quite savvy in terms of grant applications and support.
Rob Binns, Cotton Court
I’m involved in three areas of business: start-ups, ongoing operations and larger companies looking to scale.
From the start-up perspective, that’s fine, because we’re using existing funds which
came through, like the Seed Enterprise Investment Scheme (SEIS) and other elements.
The ongoing operations are different, using debt management and asset-based debt. Moving forward, from a business perspective, all that is manageable.
The interesting element is the larger companies, where turnover is around £75m and you’re looking at expanding via acquisition.
Looking at raising between £5m to £20m so that you can go on a quick acquisition trail, whether that’s mixed between equity and debt or convertible, that’s the most challenging area. Doing those sorts of deals, where you see an opportunity and need to move on it quickly, and everything is in place, that is where I see the biggest challenge.
It is a finance challenge, the business model is there, everything is in place, it’s a matter of being able to raise the finance quickly enough to take advantage of the opportunities.
A lot of our clients at our Cotton Court business centre are looking for early Angel-type start-up funding. With some of our own projects, we’re all right because were quite well asset backed, so if we need additional funding, we’d look at the traditional route.
As for the bigger, lumpier stuff, we’ve got people out there trying to come up with solutions.
Andy Wilson, Abbey Telecom
About three weeks ago we acquired a company based in Preston. That was something we were looking to do months ago, but with the pandemic and other things it got delayed. The cash was there to do it and it was really building into our strategy.
We’re not seeing the big new deals at the moment; people are a little bit cautious. But we are seeing a lot of people wanting to sell, so acquisition, as a model going forward, is something we’re considering quite strongly.
The opportunity is very much there. On a daily basis I have people ringing up, saying,
‘There’s this business up for sale…’
We had a little dip into CBIL and various other things over the last few months, more of a ‘just in case’ measure, rather than an ‘absolute need’.
Going forwards, the strategy hasn’t massively changed, we’re still moving with plans that we had in place. We are fairly strong in the education marketplace, and there’s a lot of money in that area. That has helped us an awful lot, in terms of new opportunity.
The market is awash with cash, the big question mark is the access to it and how expensive it is. I’m not convinced it’s as easy as everybody says.
Richard Stephenson, YUDU
We got our finance in place before the pandemic hit, but we did go for a CIBL loan, because we did all the forward forecasting. We have a lot of existing and repeat clients, so we forecast very carefully.
Before the pandemic hit, we had funding for strong growth this year. We realised some of that was not going to happen, so we cut our cloth to make sure we could get through this period.
We didn’t furlough staff and our thing was to put the hammer down and push wherever we could. We then removed cost. We had a central London office and were about to negotiate a new lease, but right at the beginning of March I took the decision to close it and everybody works from home.
Every opportunity we see where our technology can help and work, we are taking it.
In many ways what we’ve done is pivot to the public sector because there is cash there and immediate need.
We haven't got our head up looking for finance, we’ve got our head down, looking at how we drive this business.
It’s about pressing the accelerator button at the right time. Business is all about timing. It’s a judgement call, and in some ways, investors look for management who generally make those calls correctly.
David Gill, Centaur Technologies
We made CBILs applications to two separate funders and relatively quickly received two offers. We simply picked the best.
We’re not using that money to get us out of trouble, because we’ve come through the lockdown relatively well, we’re using it to fund growth. It will enable us to engineer a step change in the business.
The issue we’ve had has been with invoice finance; reducing credit limits. We haven’t seen the support the government have been promising, but what credit insurers have been doing is offering top-up finance, so to reinstate the reduced credit limits we have to pay them a premium.
Even so, we’ve seen a huge surge in demand in the construction sector. From the beginning of July, we’ve done 75 per cent of our forecast turnover for this financial year in three months, and that’s put the insured limits under some pressure. Fortunately, that’s now starting to reverse.
As business started to drop off from March onwards, our cash, locked up in working capital, started to unwind, so our bank balance increased, rather than reduced. During the three-month period we were treading water, not losing money, not making money.
One thing that we’re also progressing is grant funding, which will be very helpful to us. We’re quite resilient and the next thing we will look to do is review the invoice finance facility we have.