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Breaking Barriers: Raising funds for increased production

In our Breaking Barriers series, we put your questions to our team of growth and scaleup advisors. In this edition, we speak to Alun, BICs Finance Director.

Alun is a Chartered Management Accountant with over 40 years’ experience in finance from hands-on operation of financial systems to financial directorship of a FTSE 250 company, and management of subsidiary companies. His experience, however, is not limited to the large company sector. For the past fifteen years, he has been working with start-ups and SMEs providing strategic business advice, furnishing business plans, modelling financial projections and providing a range of financial and business services.

Q. We are planning to increase production but need to invest in new machinery. How should we go about raising funds?

A. In answering, I’ll assume that the funding sought is either asset finance or term loan. However, please note that there are other possible routes and it might be wise to consider alternatives before committing to asset finance / term loan.

I’m sure you’ve already done your homework on this but to give a complete answer the first vital steps are to consider some basic questions:

  • Is there demand for the intended increased production?
  • Have you got the room to safely and effectively install the new machinery?
  • Will you have the knowhow and labour to run the new machinery?
  • Is the machinery coming from a reliable source that will provide repair and maintenance if required?
  • Have you considered the full financial impact of buying the new machinery? In particular have you considered the financial effect of increased working capital (you’ll probably be carrying more stock and more trade debtors if production increases).

Assuming this “homework” has been carried out try putting yourself in the shoes of a would be fund provider. What do they want to know? Very simply they want to be convinced they’ll get their money repaid with interest. So, how do you convince them?

  • Are your accounts up to date? Funders will typically want to see full historic annual accounts and latest management accounts. Do you have them? Do they show you to be a good, profitable business?
  • Have you got financial projections covering the period of installing the new machinery and the (at a minimum) the early years of repaying a loan with interest?
  • If the prospective fund provider visited your business would they be left with the impression of an efficiently run and well controlled business?
  • Will a fund provider find any skeletons in the cupboard? Previous failed businesses that you were involved with? Make sure you have an explanation ready.
  • Have you any bank covenants or prior loan conditions that would limit current ability to borrow?
  • Would you be willing to provide a personal guarantee if requested? This is not something we would recommend but it is frequently asked for by fund providers.

Our growth specialists can help your management team focus on the next steps needed for your growth. Whether that support comes through scale-up leadership, support to implement your growth plans or help to overcome barriers, our team can guide you on your growth journey. If you would like to discuss the financial and/or technical aspects of your plans with an experienced team, contact us.

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