By Peter Douglas
Business Finance Services
What is the most important rule when running a business? Be realistic!
The second most important rule? Listen to sound advice when it is given and act upon it!
We are constantly amazed at how often we are approached by potential clients with unrealistic expectations. What is interesting is that this lack of realism can be evidenced by either over-optimism or by over-caution. The over-optimism can take many forms e.g. looking to penetrate an already well-serviced market or forecasting unrealistic growth figures. These we come across frequently. That does not mean that we think the whole business plan is unreasonable, it is simply that the planner needs to take a reality tablet and then re-think the forecasts.
Equally interesting are the clients who approach us with what appears to be a very reasonable business plan to which is attached a multi-year forecast with an over-inflated borrowing requirement. A prime example of this is the client who approached us saying they needed to borrow £250,000 for a period of three years. All very fine, except that when we looked at their forecasts it showed that the business would become cash positive before the end of the first year. Not only this but the minimum bank balance shown in the cash flow forecast was £182,000 which was reached in month four. Not surprisingly, our first question to this client was ‘Why do you need to borrow this amount over that period?’ Answer – ‘Someone said we should to be safe!’ As with any business situation there is no point in incurring unnecessary debt. If you don’t need it, don’t borrow it! In this case it was agreed that the client’s borrowing requirement should be reduced to £100,000 for a maximum of 12 months.
Having said this, there are times when the opposite can apply whether one is dealing with conventional lenders or investors. OK, another of our rules! If you need to raise finance for the business always make sure you raise enough to finance your growth plans. No funders will be happy if they lend/invest funds only to find that the borrower comes back some months later saying they got it wrong and can they borrow some more.
Planning your borrowing requirements, whether you are a start-up or an existing business, can be more complex than expected. That’s where we came in at BFS. In simple terms, we can to help SMEs with their planning and funding to meet future needs. Just call us on 0800 093 5240 or e-mail us at and we will be happy to help.
