The key enabler for success for many startups and small businesses is securing funding. Even with the growing support around the world for investing in entrepreneurs, many of them still struggle with the preparation required when applying for funding.
We talked to one of our SuperVCFO Partners, Sharon Pocock who is the Managing Director and Principal Accountant at Kinder Pocock on her top tips to secure funding. In the last six months, they have secured £225,000 of funding for their clients and they are just about to assist a client with their second round of investment, having supported them through a successful first round.
Where do you see most startups and small businesses go wrong when applying for funding?
Mostly I see them not providing enough detail in their application and also not making any contribution themselves to the funds needed. Funding providers are always looking for the applicant to be taking some of the financial risk themselves and it’s important to have made a contribution.
What preparation can they do to get themselves in the best position to be granted funding?
Definitely get a good accountant on board. One who they are comfortable with and who they feel understands their business and situation. Discuss your plans with the accountant and ask them to prepare cashflows and forecasts to prove the business idea is viable. These should be done both for the startup or small business and for any funding providers. By working with their accountant on these forecasts, the business is likely to gain really crucial insights into how they will manage their growth plans, from how many staff they need, to how they are going to reach their anticipated sales targets.
In our experience a great idea for startups is to get out there and network. This is invaluable not only to build the business, but to also to get invaluable support and info from other businesses, including finding out how they went about raising finance. We are just about to start an alternative networking group specifically for new and vibrant businesses, who may be put off by stuffy networking groups.
When do you think is the best time for a startup or small businesses to apply for funding?
Before spending any money! It would be very very risky to embark on your startup idea and start spending money if you don't have a very clear understanding of how you will pay for things. It’s particularly important not to take on any leases or contracts, if you can't definitely commit to the full term of these.
Why is it best to involve a professional when applying for funding rather than doing it themselves?
The right professional will have experience in funding applications, will know what the funding provider is looking for, and also how best to present the information. The right professional is likely to think of things the startup won't have even considered. From the funding providers perspective, they really like to see that there is a qualified accountant on board proving the viability of the business idea.
What tools do you recommend a business using when applying for funding?
There are many business plan templates out there, so use these as a guide to the information you need to provide (this includes key staff, key management, market research etc as well as forecasts).
For the financial aspect of the application, I would definitely recommend an easy to use online accounting software such as Xero. Utilising cloud accounting software means you and your professional advisor have instant access to the same live data.
A product like Xero also allows you to add budget figures, which can then be imported into a good reporting tool like Spotlight Reporting.
We generally work on the Xero data with clients, and discuss with them their plans for the future, and translate this into financial forecasts within Spotlight. The reports are very easy to read, and include visual translation of data too.
As an accountant working with many startups and small businesses, Spotlight is perfect for us as it’s really easy to tweak the forecasts and scenarios to reflect different outcomes for the startup business. These could include things like: what happens if we increase income from quarter two onwards? What happens if customers take sixty days to pay instead of thirty? What happens if we don't get funding - is the business idea still viable?
If external funding isn’t an option, we are able to identify with clients where they can free up existing cash in the business by using reports and forecasts as well.
As you can see, ensuring your data and reporting is correct and always using an accounting professional can really help aid startups and small businesses when applying for funding.