KB BUSINESS DEVELOPMENT 36 images JULY 2019 The cash conundrum I t takes cash (also known as ‘capital’) to launch a business. And once it’s launched, it takes cash to sustain it for the rest of its life. If the cash isn’t generated from within – by profits earned – then it has to be topped up by external sources. Cash is to a business what blood is to a body. If a body’s blood level drops below a critical level (based on its size) or stops flowing – even for a short while – it’s game over. This may sound cold, but you won’t find a better metaphor for what cashflow means to your small business’s survival. Unless you’re in a more fortunate position than most small business owners, you will have to confront the conundrum of how you’re going to raise cash almost certainly at the start-up stage, and possibly at points during your business’s life, particularly if it grows rapidly: one of the great ironies of rapid business growth is that it can result in business failure due to insufficient cash flow. Ultimately, the answer will lie with a financier of some sort – an investor, lender or donor. But before seeking a financier, you have homework to do. Cash-raising strategy The purpose of a cash-raising strategy is to identify the right target and select the right ammunition. It comes down to presenting a persuasive argument for why a targeted investor, lender or donor should turn money over to your small business. So, what’s involved in designing a cash- raising strategy? There are four steps. ■ Step 1. Figure out how much cash you’re going to need and when. This should be the easy part. It’s a product of the cash-flow projection of your budget package. ■ Step 2. Determine which of the various types of financiers are best suited to your small business (more about this shortly). ■ Step 3. Prepare the pitch. Frame your initial pitch like a story. Everyone Michael Best delves into the world of financing and how to fund your business through good times and bad likes stories, even hard-nosed investors, lenders and donors. If your target expresses interest then expect to bring out the detailed narrative and spreadsheets. ■ Step 4. Deliver the pitch to the targeted prospect. Make it informative and eye-catching, but keep it brief. If you use visual aids such as flip charts or a laptop and projector, support them with something that can be taken away. A one-page document or flyer should be enough. It’s a little different if you’re dealing with a bureaucracy, such as a bank, w i th rigid procedures and reams of forms. But I’d still recommend presenting a flyer with graphics to summarise the purpose of your loan application. Now, what type of financier should you be targeting? (For the purposes of our discussion, a ‘financier’ is a person or institution who controls a large amount of money and can give or lend it to businesses via an equity investment, loan financing or donated funds.) Equity investment Heidi Scrimgeour’s Telegraph article ‘How to finance a growing business’ [ ] provides a good thumbnail explanation of equity investment: “Equity funding entails giving up a slice of your business in return for investment. Venture capital and angel investment networks are the two main equity funding routes open to small businesses, but require a clear plan for delivering a return to investors within an agreed timeframe.” Investors can be found through networking events, community organisations, professional associations, trade organisations, business conferences, networking platforms such as LinkedIn and mutual contacts. If you (and your advisors) determine that an equity investor is the best option for your small business, then select your target and make your pitch. But this won’t be the financing route for most run-of-the-mill small businesses. These businesses won’t likely arouse any interest among venture capitalists or angel investors. Loan financing What else drives many small business owners to favour loan financing over equity financing (aside from failure to interest venture capitalists and angel investors)? An independent spirit. Equity financing requires giving up at least some ownership. And, quite often, it also involves sharing management control. Information on the various types of lenders and their lending methods could be a book on its own, so I’m just going to touch on the more common options: financial institutions, private lenders, business incubators, factors, and family and friends. Whichever