Do you need business finance? Really?

Rather a strange question for a finance broker to be asking, isn't it; but this topic frequently comes up on the lender side of the business fence and will actually, in many cases, form part of the business argument for (or against) lending.

The question broadly speaking has 2 key components:

Firstly, is it possible to utilise your existing resources to better effect? The prime example of this is customers who come looking for cashflow facilities (debtor finance or bridging overdrafts). In many cases the best avenue is conduct a careful review of both debtor and creditor terms - set a simple goal - to see if you can improve your cash position by 10% by adjusting and managing your debtors and creditors.

Sorry, but I will definitely upset a few people here  - however good you feel your credit control is, it is almost certainly not as good as you think. That is a simple, statistical fact. Most people resent bringing in 'specialists' to do what they feel they can do themselves, but will then go on to pay arrangement fees, management fees and charges to a factoring company to bridge the cashflow hole. An external review of your terms, systems and effectiveness can add a lot of cash (your cash!) to your business - and that is for ever - not just to bridge the gap!

So, if you want invoice/debtor finance I would be delighted to chat, but for your own sake, first of all ask yourself if you are really doing all you can to bring in money yourself.

The second component could be called aspiration (or perhaps expecting too much); and much of the blame can be put on the doorsteps of 'TV entrepreneurs' and motivational literature constantly urging us to 'think big', 'live the dream' and so forth; thus wannabe entrepreneurs approach funders with what amounts to a plan requesting finance for a fully-functioning business. (The good news is that it is always 'cast-iron' or 'fail-proof').

In one extreme - but entirely true - example, we were approached by a young person wanting to set up a retail based IT business - the plan included staff, vehicles, stock, marketing and - yes - freehold premises. What was he bringing to the venture? A degree in IT. This particular person did actually go on to complain that banks wouldn't help small businesses, even after I pointed out that even in the days of lending hedonism he wouldn't have had a chance!

An extreme case, but not wholly unrepresentative of many people's aspirations. The banks got very, very silly with lending and in the process created very strange expectations; the commercial reality now is that you need to build a business from scratch not to start at a jog or least of all to walk into a fully-functional, externally funded enterprise.

Having aspirations built into your plan is probably a good thing, but day one expectations must be realistic.

So, before you waste lots of time doing big business plans and presenting them to banks or funders, ask yourself 'can I get going without the money' - an up and running business is always an easier proposition than a pre-start.