Ethical Business Advisory: Africa. UK. US.
Services
04. Financing Readiness
Taking on new finance partners (e.g. loans, grants, private equity and venture capital)
Who is this service for? Shareholders/owners who are looking for additional financing (e.g loans, grants, private equity) or an exit strategy from their business (e.g. due to age).
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When a business is seeking additional finance partners (e.g. loans, venture capital, private equity and/or grant funding) it is critical to prepare in advance (sometimes up to 3 years in advance) so as to be able to get the best possible deal (or earnings multiple). Do you know what funders or new financing partners look for? We help a business prepare for the rigorous requirements of finance partners as over the years we have researched the different types of funders and so we know what the funders typically look for and so can help.
Most funders or investors seeking a target will look at some of the following:
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Business model - is this model scalable? Is it sustainable? Will it be disrupted in a few years?
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Revenue sustainability - Is the revenue recurring or mainly nonrecurring/seasonal.
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EBITDA - what is the EBITDA? Are there any adjustments that need to be considered?
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Working capital - what is the "normal" level of working capital.
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Audited Financial statements - are there 3 years of audited financial statements by a reputable firm?
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Management team - what is their pedigree/quality.
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Collateral. What collateral is available in the business?
This advisory service is similar to a "sell side financial due diligence" and comprises of a review of the business to evaluate how it might look to a potential funder/partner. Once the initial review is done, with potential red flags or areas for improvement identified, it then also involves helping a business in advance by putting together a "business plan" or "pitch deck" in a way that will make them suitable for acquisition or additional funding.
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Once the business is "finance ready" we then work with you to find you the most suitable funding, if not already identified. This could be say: a low-cost loan, a grant, a private equity/venture capital fund et al. We use our access to various databases including in the US to find you the right partner. We are assisted by experts and AI solutions.
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What do most lenders/funders care about?
By D E Wasake, FCCA. Principal.
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In business, the reality is that at one point, you will most likely need to apply for a loan or seek financing from a 3rd party.
Assuming your idea is viable and you have adequate security (if looking for a loan) then there are a number of things to know about from the lenders’ perspective, because like in the “Art of War” a book on military strategy, author Sun Tzu says: “Know your enemy.”
Over a period of 10 years as part of our advanced thinking newsletter we started featuring a number of providers of alternative sources of finance as well as their requirements. We undertook research by reviewing the websites, looking at the funding requirements and similar checklists of more than 15 lenders or funders comprising of:
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Venture capital funds
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Private equity funds
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Grant providers
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Traditional lenders (e.g. banks, development finance institutions).
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A number of trends emerged and the following are the key considerations from the lenders/funders we researched on:
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Corporate governance
First things first. What is corporate Governance? Put simply:
“It is the process by which the company’s management is being monitored by someone else.” It is the process of for example having a board of directors to set the framework and to whom management are accountable.
Why is this stuff important for the lenders/financiers?
In many cases, there is a direct correlation between companies failing (failing to take off, making losses, winding up) and not implementing proper checks and balances.
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Besides these lenders themselves are often supported by institutional investors, pension funds, government bodies, international lenders (like IMF) and other backers who need to be sure that the entity they are investing in is running the business properly with proper checks and balances like: board of directors meetings, a board with an independent non-executive, regular accounts and regular internal control checks.
All the largest and most successful companies have strong corporate governance and so likewise these lenders expect that before they part with their hard earned money, you will have this in place.
Audited accounts
It goes without saying that typically for you to get 3rd party funding, they will expect to see your books of accounts, as independently reviewed by an auditor (a special type of accountant). These are often referred to as CPAs, Chartered Accountants and similar titles.
Why is this stuff important?
The lenders are investing their money (or other people’s money) so they need to reasonably satisfy themselves that you are giving them the “real deal”. Many of these firms will expect at least 3 years of audited results (hopefully profitable). The more reputable your auditor, the higher the chance that they will take you at your word.
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Scalable market
Funders like the venture capitalist firms are looking to make a profit from their shares in your company, should it turn out to be the next big thing (like say NVIDIA, Google or Face book). They want to get say 5 times their investment and to get this kind of return; they need to be sure that your market is big. Scalable basically means that if the concept/idea works say in Illinois, then it can be repeated/rolled out in say Michigan, Idaho and Missouri.
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Team
Again for firms whether it is the venture capitalists (who invest in start up/early growth companies) to private equity firms (which invest in more established companies), it is critical that the team is experienced, ambitious and has vision to implement its strategy. It means that if you are to therefore put together your business plans, you need to clearly put together a strong balanced team with sufficient experience. One that will convince lenders that the idea will work successfully and the team knows what it’s doing (and where its going).
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Ethics and social impact
Financiers are increasingly conscious about whether the company will act responsibly. There is nothing that damages a company’s fortunes like bad publicity from unethical practices (such as land grabbing) and in this day and age, information travels very fast via X (formerly Twitter), Facebook and other social media platforms. It is therefore important that your business plans can clearly show how your plans will first not do harm to the community but will more importantly be impactful – in your local community.
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And now the disclaimer: While we have taken steps to research this information as well as based on our experience, you should not solely rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. The author (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.
