SMEs must get their books in order before they seek finance

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Although there are issues in relation to accessing finance, it is extremely important for entrepreneurs to get their books in order before they try. And chartered accountants can help

Are start-ups looking in the right place for finance?

As anyone who knows me will confirm, I am passionate about enterprise and especially about supporting the UK’s growing ranks of entrepreneurs and start-up businesses.

I’ve spent the best part of the last decade learning lessons from the best in the UK and, through my work as UK President of G20 Young Entrepreneurs Alliance and on the European Confederation of Young Entrepreneurs, from around the world as well.

One common issue, regardless of whether you’re talking to those running businesses in Russia, Brazil, the US or the UK (and I have visited businesses in all these countries) is finance and access to finance in particular.

The last few years have been challenging for many in terms of access to finance, with the large banks busily following orders from regulators to de-risk. This flight from risk has offset the beneficial impact of low interest rates. Debt may be cheap, but the official figures speak to the paucity of lending activity. Regardless of whether that’s down to a lack of supply or demand (and there are arguments offered on both sides), there simply hasn’t been the money flowing through the banks that many hoped. 

While a depressingly high number of entrepreneurs still don’t look far enough afield, the range of options open to them is bewildering

Nevertheless, entrepreneurs abhor an unfilled opportunity and the market has risen to this challenge, with the arrival of a seemingly endless array of new financing options. It wasn’t that long ago when a business seeking finance turned to the bank. If they were rejected, that was often that.

While a depressingly high number of entrepreneurs still don’t look far enough afield, the range of options open to them is bewildering. We’ve seen a sort of supermarket effect in the world of business finance. There is now at least a whole aisle of options for those seeking to raise finance. That was why the publication last week by the British Business Bank and ICAEW of a Business Finance Guide was so welcome.

Choice is all the rage, but it is also confusing and the guide does a good job of explaining the different types of finance and helping those running SMEs make sure they get the right finance at the right time.

But there is another aspect to the financing of SMEs that is too often overlooked. The reason many applications for funding are rejected is because the business simply isn’t ready for finance. That might be down to poor internal controls and a lack of decent systems or a lack of a clear plan as to how the new money will be spent, how it will help grow the business and how this projected growth will make it more likely there will be sufficient resources available to repay the investment (and offer a decent return on it).

Too many otherwise successful SMEs are being held back because they aren’t finance-ready. And there is a knowledge gap in too many cases. Too many people running start-ups are also running scared of the numbers. For no real reason they feel that this stuff is the scary stuff. They didn’t start their own business to worry for hours about a VAT return, so why not just ignore it and hope those letters from HMRC go away by themselves.

But there is help available. ICAEW’s Business Advice Scheme is a great example of the help on offer. The scheme allows small businesses to access a one-hour free consultation with an ICAEW member firm. It may be one hour that changes your business for the better, forever. As the recent founder of a business myself, I can vouch for the fact that the some of the most valuable advice I got was from my accountants.

They keep things simple for me and allow me to focus on running the business. Of course I pay them for their services, but they are closely aligned with my objectives and the more successful my business becomes, the more they’ll get rewarded.

If we really want the UK to thrive as somewhere that’s not just good at encouraging start-ups, but also at growing businesses, we need more of our companies to be finance-ready. For that to happen we need to encourage more people running SMEs to overcome their fear of the numbers and tap into the help that’s available. A more finance-ready Britain would ultimately be a more successful Britain.  


Alex Mitchell is the Founder and Director of Causarma, Co-Founder and Director of the Young Brits Network, Co-Founder of Kit Us Out, UK President of the G20 Young Entrepreneurs Alliance and UK representative on the European Confederation of Young Entrepreneurs.


 

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