Being in a position where your company is easily able to attract funding and investment is key, writes Chris Robertson, CEO of Creditsafe UK.
While increasing sales might seem the most obvious avenue for achieving growth as an SME, gaining investment and support via external funding could be key to taking your business to the next level. Whether that be angel investors, asset finance, or through obtaining credit during periods of reduced cash flow, financing is often the key to maintaining the momentum you and your team has worked hard to build.
Being able to access additional funds is crucial if a business wants to make a major investment that could safeguard its future or allow them to take their service to the next level; this could be in the form of new technology or machinery, staff training or making the move to a new premises to accommodate growing teams.
However, the ability of an SME to access funding and attract investors is entirely dependent on how credible their business is. There is a reason why those entering Dragons’ Den need to know their figures by heart, as it’s the first thing that a prospective investor or credit lender will look at when scrutinising a businesses’ potential. It’s therefore crucial that the financial legacy of a company paints the organisation in the best possible light.
One of the main limitations for business growth is usually centred around a lack of resource to capitalise on bigger opportunities when they present themselves, for example, being able to facilitate a major order or rise in demand for a certain product. Therefore, being in a position where your company is easily able to attract funding and investment is key.
An eye for late payments
When we advise businesses and investors on how best to judge if a potential partnership or investment is worth pursuing, late payments are one of the first measures we suggest that are scrutinised.
Being paid late can have major repercussions on a company’s cash flow, which in turn can quickly amount to further problems such as being able to pay suppliers or staff. It’s essential that businesses pay their creditors and suppliers on time.
Transparency is key
There is now more information and company data available in the public domain than ever before. This means suppliers and investors can review a potential business partner in a matter of seconds. It’s therefore crucial that business owners have their “ducks in a row” when it comes to ensuring there are no red flags present if an investor conducts a quick company or director search.
Having a County Court Judgement (CCJ) on your company records, for example, could create an immediate cause for concern for potential investors so it’s crucial that accounts and finance teams are made well aware of the potential repercussions of delayed payments. If a company appears to have been taken to court over payment disputes, it could raise questions about the cash flow of a business and ultimately, the ability to repay investors.
Build your business credit score
A business credit score takes into account a number of company financial KPIs including how prompt a business is in paying suppliers.
For the UK, this figure is based on a scale of 1 to 100 and is the most commonly used metric by businesses and lenders alike to check a company’s chance of becoming insolvent before offering their services to them. Aiming for a score of 50+ will showcase that a company is a ‘low risk’ investment, so reaching this benchmark is a good starting point. This can be achieved by paying creditors on time and maintaining strong financial credentials.
Think about your other business connections
Directorships can also provide a strong indicator of how a company operates and it’s therefore crucial that you think about how your leaders are represented in credit check data. For those that dig deeper than a company overview, a board of directors that are associated with other failed businesses or insolvencies could mean that investors stay clear. While it might seem drastic, it is worth considering the history of your potential board members to ensure your business is presented in the best financial light possible.
Furthermore, if your company is part of a wider group of businesses, it’s important to ensure their financial blueprint is in order to provide a positive indicator of the wider operations of a firm.
There is no such thing as a perfect business
It is important to remember that while businesses should do all they can to maximise their credit score, make timely payments and deliver year-on-year growth, there will always be times when companies are unable to meet the criteria of certain investors.
With the ongoing discussions surrounding Brexit and the lack of certainty within the economy as a whole, creditors are raising the barriers to investment all the time, and it’s therefore imperative that businesses do the basic administrative tasks well – such as paying suppliers – to ensure they aren’t penalised for any mistakes that could have been easily avoided.
By Chris Robertson