Funding for growth is often by way of bank lending but joint ventures for product development can potentially benefit from a combination of know how, intellectual property and finance for shared longer term benefits. Finance should be recognised and matched to specific objectives.
Some examples of finance options are:
- Invoice finance where customers are on longer credit terms than suppliers. This finance is secured on the “Debtor book” or amounts owed by customers so it does not materially affect your company’s ability to borrow against other resources.
- Trade finance via insurance. Companies can benefit from trade insurance taken by their suppliers who are then confident in issuing more credit to your company. The amount of insurance cover trade insurers offer is based on a credit score of your company so it is important to take good care of your company’s credit rating. There are ways of achieving a higher credit rating and benefitting from more supplier cover, which effectively gives your company funding free of charge.
- Lease finance is secured against the asset purchased so it does not affect your company’s ability to borrow against other sources.
- Where a company has a strong asset base, a sale an leaseback may be an option, particularly with land and property.
The only way you will ever permanently take control of your financial life is to dig deep and fix the root problem.
Suze OrmanAmerican author
There are many other examples of finance. We have even structured finance secured against our client’s customer, using Bills of Exchange. Providing imaginative solutions and thinking out the box can secure growth finance to enhance your company’s valuation.
There are also some finance blunders to avoid. For example, do not take a 3 year loan to finance a 5 year project with the hope of renewal. There are many finance options and all carry risk but there is no need to take unnecessary risk.
Financing an acquisition can broadly be through cash, debt or equity. Issuing shares to the management team of a target acquisition as an incentive may also offer an exit option for that team after they achieve the initial goals. Banks offer debt finance for acquisitions through specialist divisions and we are in touch with investors who have significant cash reserves for the right deal.
For businesses seeking to sell, we would recommend preparation work which, in a family owned business for example, can mean a two year strategy. That strategy is about streamlining systems, creating robust procedures and maximising valuation for the shareholders. This is likely to include building on know-how and intellectual property, clearly identifying the “edge” which you develop compared to your competition.
Partial exits for existing shareholder(s) are possible through self-funding without an external investor. In UK and some other jurisdictions, it is possible to extract cash tax effectively from the business, without incurring income tax, by using a pre-arranged share buyback option. We can assist you with the relevant tax clearances.