A business may need funding at various points in its lifetime, most are expected and planned for well in advance, such as when a business expands or scales up. However, there are times when a business is unaware that it is about to run out of cash and then at the last minute realises this and urgently begins the search for new funds.

The Adjustment Agency has assisted a number of companies with these problem and can probably help you too.

The reality of raising financing and how we can help

We employ a simple 5 step process to assist business secure the most appropriate type of funding for their unique circumstances:

1. Identify the right or optimal source(s) of funding for the specific business circumstances.
2. Assess whether the business meets the requirement of that source of funding.
3. Identify the relevant documents that demonstrate the funding providers' requirements are met.
4. Make introductions to funding providers.
5. Assist in negotiation with funders.

Struggling businesses often spend a significant amount of time 'fire fighting' and having to manage the cash position on a day to day basis. Raising finance in these situations is often extremely difficult, as funding providers can be worried about losing their funds. Others take the view that they do not wish to bail out a company for its previous mistakes; if however the funding provider is interested in the company, they may decide to wait for the business to fail, and then 'buy it on the cheap' from the administrator/liquidator. These are all challenges we have successfully navigated before.

The challenges of raising new financing

Successfully arranging a new source of funding is never an easy task. There are a variety of challenges; some posed by the businesses needing the funding, others by those providing it. Here are some of the challenges that need to be considered if your business is to be successful in finding a new or additional funding source:

Recognition and acceptance

There are numerous reasons why a business may suddenly find themselves in a cash crisis. Chief among them is your aged receivables - are customers actually paying you on-time?

It’s common sense that a business should maintain a healthy working cash base, such as four months cash to support the business should inflows of cash stop or get delayed for a while. It’s also quite easy in a business growing business for this cash position to become eroded; perhaps because of urgent expenses or an order that requires a higher level of raw material or labour to get a product or service out the door. Then, there’s a delay before the client pays. Meanwhile a perfect storm is brewing, as perhaps other financial commitments become due or there are severe problems in the economy. The result: suddenly that comfortable cash buffer has gone and bills need to be paid, especially the commitment to staff salaries.

In other scenarios, we have seen businesses with, what was a healthy buffer of cash from investor funds, dry up, because for example, it may have taken too long for an essential new product to be introduced. This may not even be the fault of the business, as in the case where regulatory processes become protracted. This can leave a potentially lucrative business facing insolvency quite quickly.

The key to resolving any of these situations, if it is at all possible, is to recognise there is a problem, accept it, and act quickly. Unfortunately, as we have seen, it can take a while for some business owners to come to terms with the situation.

Appreciation of the funding process

We find most business owners have a healthy view of the variety and importance of funding sources - whether or not they need them. However, such views often lack a real appreciation for the needs of the funding providers. This is important, because the potential source of new funding will depend closely on the condition and performance of your business. For example:

Debt funders: This includes banks and other lenders. Typically, these institutions require a credible explanation of why funding is needed, demonstration that the business can afford to service the debt and the interest payments, and finally, security for the loan. In general, if any one of these 3 requirements is not met, it is unlikely that the business will be successful in getting a loan or overdraft.

Equity providers: These sources would be making an ‘investment’ in the company in return for something. Most typically, part ownership of the company and also, some degree of representation within the management or on the board. Giving away part of the company to an external party can be very hard for some business owners. Equally, the equity investor will want to ensure that the management team is up to the task and has the experience and credibility it expects, and that there is considerable growth potential. Most often though, equity investors in this country won’t back pre-revenue or early stage businesses, making it difficult for struggling startups. High-tech can be an exception, but then the sums being invested are very significant, as due diligence costs are high.

Ongoing consideration

As one might expect, you don’t just take cash from a funding source and that’s the end of it. Banks for instance, will need regular management reporting to ensure the business is on track.

Equity providers, in addition to regular reporting, are likely to want a shareholders' agreement that may place limits on what the management team can and can't do. Also, they may require a seat on the board of directors. And, they generally require an exit strategy, whereby they can realise the value of their investment in typically 5 years.