The moments that made me
How to secure the funds to drive growth
To grow at the right pace, you might need outside funding. Here’s how to get what you need.Download the guide
Planning investment in your business? Ensure your long-term strategic plan highlights when and where you’ll need that funding, and how you’ll get it. Get the inside track from Helen Roxburgh, Partner at KPMG.
KPMG Enterprise’s Moments That Make You report can guide you through critical growth decisions, including planning investment in your business.
We regularly encounter business leaders who have grown their business to make profitable returns, but find themselves hitting a wall in continuing to deliver growth to scale.
And for many management teams there is no option to stop, wait and build up a war chest, because any serious delay will see competitors come in and fill the gap. That means one thing: outside funding.
Whether you decide to raise debt or consider Private or Public Equity, the fundamental approach is no different – everything comes down to your corporate strategy and your ability to articulate it properly.
"Don’t leave a commercial financing discussion solely in the hands of the Chief Financial Officer: the lowest price is not always the best price."
Helen Roxburgh, Partner, KPMG
You need to be clear on your long-term plan (typically across five years) and how you're going to implement it. You also need to be able to explain how you’ll spot the inevitable challenges to your business or industry that come up and, of course, how you’ll respond to them.
Once that’s in place, it’s vital for the senior management team to reach an agreement on what financing requirements are needed to make it happen – and, most importantly, which markets and lenders suit your objectives and growth plans.
One thing that can stop this in its tracks is vagueness: investors and lenders need to be persuaded that you’re capable of both delivering growth plans and servicing the borrowing, and that will only happen if you can demonstrate granular knowledge of your business, its nuances and forecasts. They’ll also want a precise and clear articulation of why you need the money – whether it’s for people, products, new premises, entering new markets or overseas expansion – and how that supports the returns you’re projecting.
There are many different funding options for businesses. For early-stage businesses, for example, options include independent private investors, venture capitalists and other types of ‘incubators’ who provide funding and advice to startups.
If you’re a larger business with more specialised leadership roles, don’t leave a commercial financing discussion solely in the hands of the Chief Financial Officer or Finance Director, as this may result in a view led by an appetite for risk and debt rather than the wider commercial perspective. Involve the Head of Operations and Technology Chief because they’ll be looking at other factors and considering the need to retain greater flexibility in their access to capital.
The funding landscape breaks down into three broad territories:
''Balance the risk of investment, to make sure that it aligns with your corporate strategy.''
Helen Roxburgh, Partner, KPMG
It’s also important to balance the risk of investment, and to make sure that it aligns with your corporate strategy. One of the key considerations may be flexibility of terms. Whether its debt or an equity investment, restrictive terms and provisions from funders could present serious obstacles down the line. An example of this would be limits on capital expenditure.
We often find that pricing is a flashpoint here: don’t be inclined toward the cheapest pricing, if that option comes with a series of restrictions that could prove problematic in the future, it’s worth thinking twice.
Finally, it’s important to use your financing plan to maintain a long-term relationship with future investors and lenders. This shouldn’t be particularly onerous but, if you know you will need to be looking at refinancing a tranche of debt or raising some Private Equity funding in the next 18 months, say, it pays to target a few banks or investors and meet for a coffee once a quarter. Get them interested in – and knowledgeable about – your growth story before you need to go and pitch.
For more on planning investment, and many other aspects of growing a private business, download our Moments That Make You guide.