Archive for category Business Investment

Business owners discuss strategies for accessing capital

Strong businesses will have a strong balance sheet and a solid business plan.  They also need to devise a well thought out strategy for accessing capital.  This is an extract of the discussion at a Business Exposure Group meeting for business owners.

The Group looked at how business owners have many points to consider, including whether it is better to self fund so that they are in control, who are the most supportive lenders, and whether or not to use third party professional brokers, to tap into specialist lending.

Managing Director, Nick Adamson who attended the event, said: “We now have new funding landscapes because business is complex and so are the options for funding.  It is important that businesses make sure they cultivate several lender relationships so that they can keep as many eggs in their basket as possible.”

The merits and pitfalls of the different types of lenders that are available, were also discussed by the Group.

One attendee of the event said: “Generating enough profit and having sufficient working capital to fund growth is a real battle for today’s SME’s.”

53% of SMEs feel the current business environment is riskier than this time last year, and 13% have considered closing their business in the last year, according to a quarterly SME Risk Index from Zurich.

Nick advised: “Anticipate your funding needs early and to make sure that your business succeeds, you can use the 5 C’s of credit – a method used by lenders to determine the credit worthiness of potential borrowers:

a)    current capital structure

b)    cash flow

c)     collateral

d)    condition of the business environment

e)     character of the borrower.

“At present businesses are at great risk of underperformance.  Lenders who believe in the management will back a turnaround.  However, lender fatigue can set in if they lose confidence,” continued Nick.

If you are a Director or business owner and would like to attend one of their informative round-table discussions, please contact philipdrazen@bxgroup.co.uk

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Due Diligence – Consider which Customers to do business with.

Modern business is dangerous. It constantly demands us to trust people we have never met before over services, time, and money. A good handshake just isn’t enough to guarantee legal security. People are not rigorous enough, which is why the need is greater than ever for due diligence.

One tool out there that can help is the website www.duedil.com which allows you to follow suppliers, competitors, and clients. The website provides free company information, including director’s backgrounds and allows you to compare business with their rivals. Currently, users from 75 of the FTSE 100 companies are using this service to conduct due diligence on counterparties, daily.

However, when Duedil can’t help there are other ways to satisfy your risk assessment.

All of the considerations involve an investigation of either a business or person prior to signing a contract. But remember, you have to ask yourself how much of this may be overkill. Everyone’s boundaries will be different.

Working with a Customer

These are steps that can be taken in the name of due diligence when working with a customer.

  • Take steps to indentify your customer- checking they are who they say they are, is more than just for banks and solicitors. Make sure your contract is with the correct trading entity.
  • Only offer credit to companies 3 years old with a one-year sound payment history.
  • Trade referees- get individuals from both sides to vouch for each others reliability and worth.
  • Asking for overall sales volume, so that you can see what risk the value of the order represents.
  •  Check their credit score.
  • Use Google to track their story.

This article was taken from a discussion of the Business Exposure Group.

If you are a Director or business owner and would like to attend one of their informative round-table discussions, please contact philipdrazen@bxgroup.co.uk

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Buying a distressed business – Is it sensible?

The current economic climate has created more opportunities to buy distressed businesses. The risks are obviously high with such a venture and entrepreneurs will need to do their home work but there are ample rewards for the bold.

Why buy a distressed business? A business in distress or at high risk of failure is obviously less valuable than a healthy business however the fact it is a bargain alone should never be the motivating force towards the purchase of a business in trouble.

Buying a distressed business can offer a quick method of growth and opportunities to return to profit as well as prevent a competitor from seizing the opportunity and a chance for capital growth through purchase, turnaround and controlled sale. It also offers the opportunity of controlled disposal of parts of the business at a premium and is cheaper than buying a successful business. However, buying a distressed business requires a high level of commitment and preparation is crucial.

An entrepreneur needs to ask themselves why they want to do it and what businesses they are interested in buying. Focusing on a particularly industry will ensure they are taken more seriously. They also need to understand why the business failed, what are the costs of making it viable, whether there is room in the market for the business and whether key stakeholders are likely to support the purchase.

The buyer of a distressed business needs to have funding immediately available. The discounted price is there for those who can act quickly and many offers fail because the buyer cannot show proof of funding. Upfront payments secure better deals than staggered payment.
Buyers need to ask themselves who is going to run the business? Consider bringing in a specialist who has a track record of turning businesses around.

Seek the help of a professional

Seeking the services of an advisor can be an important move. Buying a distressed business is different to a normal purchase and using lawyers and accountants who are familiar with the process and can deal with the liquidators will protect your position.

There are various types of sales from asset only to a going concern or a pre-pack (a deal for the sale of an insolvent company’s business and assets which is agreed in principle before the company goes into a formal insolvency process).

How do you find distressed business sales? Seek out business for sale adverts – the London Gazette lists insolvencies. If you are a supplier, look out for change of trading patterns and listen out for opportunities by keeping your ear to the ground.

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Why business investors should take a leap of faith

We are told that access to funding for small businesses is the most critical factor for unleashing business growth, the kind of growth David Cameron expects to help the UK rise out of the economic downturn.

The good thing about the past few years when it comes to finding funds is that there are a wide range of alternatives now available in addition to the traditional banking route. Many established businesses have left cash in their company to try and make sure they have enough for a rainy day. In addition, many wealthy individuals are sitting tight.

All this storing of cash is a missed opportunity.

We all need to become hungry and passionate again and have an open mind about investing in business. Business owners need to create a compelling story in the form of a business plan that shows that they fully understand their market and competition.

Investors must come out of the woodwork and add value with their skills to the management teams, and provide the necessary funds to allow the early-stage businesses to get to the next stage.

It often doesn’t require that much cash but it does involve a leap of faith.

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