Funding is at the top of many entrepreneurs’ minds. “Gimme money” is a constant heart cry of entrepreneurs and business owners. Many dream of funding enabling them to reach their dream but in some instances, funding can do more harm than good. Mike Anderson (Founder & CEO of the National Small Business Chamber) spoke to Alan Shannon (Executive: Small Business & Private Clients) from Nedbank on how to get your business funding ready.
What is the first step entrepreneurs need to consider before approaching investors?
When entrepreneurs approach a funder one of the very first questions they will ask is “What is the purpose of the funding?” They want to know what you plan to do with the money they give you. Do you need it to start up your enterprise or do you need it to grow? Secondly, you must give them a track record of your business. What is the history of your business? Lastly, they will want to know when you expect to pay the loan back.
Why is there no shortage of available money?
There are numerous funders available to entrepreneurs. The money is available but it has to be lent responsibly. As many funders have shareholders they need to protect. In the context of bank loans, it is fair to say they are conservative in their funding approach but if you can give banks what they require you are more than likely to get the funding. There are other funders to consider like angel investors, crowdfunding, purchase order funding etc. The funds are there but the biggest trick is how to access them.
What do entrepreneurs need to put into place to get funding?
It depends on who you are seeking funds from. For banks and some other funders, they will want the following information:
- Financial statements: These give the funder insight into your trading history. It also will show how good you are at using cash flow to turn a profit and lastly, it will give them a good sense of prospects if they give you the funds.
Further, the statements give the funder a story of your business and they will ask you if you can explain what the income statement and balance sheet tell them about your business. Having basic financial knowledge and understanding your finances will be important for your chance of being funded.
- Business plan: Your plan needs to be compelling and realistic. As an entrepreneur, you are optimistic by nature but you need to be realistic about your projections for your business. The reason is that if you are overly optimistic about your projections and they don’t materialise then it can affect the credibility of your business. But if you are realistic and they do materialise, then your credibility goes up and you may have more funding opportunities open up to you.
- Credit score: You need to check your credit score frequently. It is free, so try to do it every three months. Your credit score shows your ability to pay back loans and if you have a bad credit score, you can fix it.
What is one mistake business owners make once they receive the funding?
The financial discipline of using the funding for the purpose it was granted. Often, a new crisis or problem arises and the funding is used to plug the hole rather than for its intended purpose. It is important to stick to the plan as much as possible and avoid using the funding for other problems in your business.
How does Nedbank assist in bringing in financial discipline?
They offer the educational material and tools you need through the Simplybiz.co.za website. They also have hooked up with Xero and Sage accounting which integrates your banking account with your cloud accounting system. Lastly, every business that banks with Nedbank is allocated a relationship banker who works on understanding your business and the needs for funding, investing and transacting. Furthermore, they provide advice and help you understand which financial disciplines you need to have to be successful in getting funding.
Why did Nedbank create the Simplybiz tool?
The toolkit was created to address the shortage of knowledge on how to access funding that is available through banks and other players in the lending space. It also provides small businesses with practical answers and steps to get answers which are not readily available to them.
