Funding the Business Growth

Expert Login

'Benefit from the real life experience of three businesses & the ongoing commentary of the expert advisers so you don't have to learn the 'hard way'!'

MORE FISHBOWLS

Friday, 21 May 2010 Written by Chris Hall

Category Finance

I have been consulting with experts from different fields of financing and strategy to find out what the best way to fund the growth of Rico Mexican Kitchen in response to Marcela's blog on finding the right funding to take Rico to the next stage. Things are looking very good with new customers and large orders, just as we forecasted on the business plan.

There are those who think that bank loan and overdraft, and potential invoice factoring is the way forward. Then others think that bringing in investors is best. I like the idea of bringing investors who have got relevant experience to make take the business forward. What do you think?

People with money or, more particularly, those who are prepared to share it with you are always nice to know – but you do need to know what they are going to want in return for their money and what strings they are going to attach to it. And in many respects the answer to the question is very much an extension of the recent response from Russell Copley to your question of taking on a potential part-time Financial Director.

It is commendable that you have recognized the need for funding if you are to really grow the business potential and that you are prepared to release your absolute and complete control of, and let others have a strategic input into the business. So it is then going to depend on how much money and over what timescale and for what in return.

Finding an Investor

If you take on an investor, and assuming that you don’t already have one lined up in the background, then you are going to have to find one first, and certainly there are plenty of avenues, networks and organisations to approach. But is it the right person? Is the chemistry right? Can you work with them and whilst I would endorse Russell’s comments that “gut reaction” works, it may still take some time to reach that gut conclusion and do you need the money sooner than that?

And even if it is the right person, is the deal the right one for you? How much of the business do you want/can you afford to give away? What share of your business do they want and what level of input do they want to give into the business? What if you find they are just a sleeping partner that ends up giving you minimal input beyond the money or what if they are going to interfere just too much in everything you want to do? But if the balance of the chemistry and the deal is right then you have a great opportunity for the business to fly almost as soon as it can walk.

An investor is for the long term. If you just need short term money for short term limited growth and current deals then I would suggest the bank loan, overdraft or SFLGS is the short term solution whilst you make sure that any longer term investor deal is the right one for you. And invoice factoring normally requires a reasonable and sustainable level of turnover from the business before it will be offered and implementing it will depend on whether your margins will permit it to work without crucifying you – and margins in the food retail business are traditionally very low.