BNZ offers advice to small and medium-sized enterprises: How to access capital to grow your business.
The biggest factor in achieving business growth can be having access to sufficient capital, and companies looking to raise cash need to go into the process with a solid plan.
The current economic climate also makes it a difficult time to be attracting investors so it’s even more important to get it right from the start, says Matt Carnell, Head of Business Growth at BNZ.
Carnell says a capital raise is a complex process and that’s especially true when investors are being more cautious in their decision making.
“We see people go to market unprepared and without a good team, and they’re not successful,” he says.
“It’s then much harder to re-approach the market a second time, which has formed a view on the investment opportunity from the outset.”
Running a successful capital raise
Prepare: Have your figures ready, including a company valuation, and be able to clearly articulate what will be done with the capital and what the company outlook is – what your company is worth today, the upside opportunity, and where it’s heading. Demonstrate why your investment will generate a better return versus risk than others.
Do your research and take your time: Learn all you can about the capital raise process and be prepared for the process to take time. Understand the different types of investors and target your pitch accordingly.
Remove the emotion: Founders must consider the investment opportunity from the investors’ point of view or risk expectations being too far apart. Business owners also need to decide if they are willing to let go of part shareholding to access capital.
Look beyond the numbers: Ensure your business isn’t reliant on the founders or other key people and demonstrate that. Shareholders also need to pinpoint their personal end goal, what would be required to achieve it and whether they are willing to make those sacrifices.
Build a good team: Include an accountant, a lawyer, HR specialist, and an experienced banker who can provide knowledge and expertise to assist you to access capital. Engaging a professional who specialises in capital raising will also mean the owner can stay focused on running the business.
Get independent advice: Having independence in a capital raise process will increase the chances of success by removing perceived bias. For example, get an externally prepared business valuation.
Growing with limited capital: Limited access to capital is particularly common for start-up businesses. To still achieve growth, robust cashflow management is vital. There are many tools available online to assist with minimising your businesses cash requirements. Don’t order excessive stock and ensure you get paid on time.
Think creatively: Consider leasing assets rather than purchasing outright and outsourcing non-critical components of your business via strategic partnerships.
Look at business lifecycle: Different forms of capital may be available, depending on what stage you’re at. For instance, a start-up is often funded by its founders’ own resources followed by friends and family investment and even crowdfunding. The first sales will open up access to angel investors and early-stage venture capital firms. Once profitable, a business may be able to access bank funding, which is a less expensive and non-dilutive form of accessing capital.
Ensure balance: Holding the correct balance of owner’s equity to bank debt means the business has an ability to absorb unforeseen shocks and take advantage of growth opportunities while still enabling appropriate return to investors. If you are borrowing from a bank, maximising your loan to value ratios against key assets and obtaining longer repayment terms will both free up additional cashflow in the short term.
This content is sponsored by BNZ.
This article is solely for information purposes. It’s not financial or other professional advice. For help, please contact BNZ or your professional adviser. No party, including BNZ, is liable for direct or indirect loss or damage resulting from the content of this article. Any opinions in this article are not necessarily shared by BNZ or anyone else.