Foundations for success

63% of UK SMEs surveyed* have found growth to be more challenging than starting up, signalling that the right foundation is a crucial element for business longevity. This is especially important when opting for external funding. Chris Walton, Head of Corporate Leverage, summarises what makes a good foundation from a lender’s perspective.

Strong management is crucial for any successful firm, and lenders will be looking for established teams with proven leadership and growth capabilities. Ensure your team has diverse skills aligned with the company's vision and strategy, and a robust succession plan is another definite requirement.

To enable your team to stay ahead of industry trends and to identify new opportunities at the upmost opportunity, it is important to upskill your staff and invest in continual training and development.

Demonstrating financial discipline and strong cash flow management is essential, especially when seeking outside capital. Regular financial reviews and audits help maintain the confidence of external stakeholders. Modern MI and data systems are fundamental for accurate growth projections and ongoing reviews, helping assess financial health and future potential.
Another significant factor for lenders is a strong credit history. Ensure that your business meets its financial obligations on time and maintains good relationships with creditors. A positive credit history can significantly improve your chances of securing funding.

Good understanding of your customers and your market is a vital aspect. Management teams should have a strong grasp of customer behaviours that drive long-term and repeat revenue. Using these customer insights for market expansion and maintaining a diversified customer base project strength and make this attractive to lenders and investors. Concentration in customers and very specific markets will sometimes be a cause for concern.

It is imperative to demonstrate thorough market knowledge, including trends, competition and customer needs, especially when looking to external debt facilities. Investors will also value the unique aspects of the firm, for example innovation or a superior service.

A defined business strategy and robust plan are essential. The plan should detail how the company will achieve its vision and communicate its value to stakeholders and investors.

Whether your journey revolves around organic growth, merger and acquisition (M&A) activity or an ambitious buy and build strategy, it is imperative to keep focus on the long-term aim and to maintain a good balance between growth-related activity and the impact this can have on your current set-up.

For M&A, understanding what the potential transaction will bring to your firm is invaluable, whether it is market expansion, new capabilities, or synergies. Clear goals aid in making informed decisions and present a strong case to lenders and investors to back your plans.

For companies pursuing a buy and build strategy, a staged yet flexible approach is usually the best answer. Start off by assessing alignment in terms of structure, financials, and culture. Then progress the transaction and integrate fully. Finally, complete a post-completion review to determine future activities and ensure ongoing alignment. Many successful acquisitions have benefitted from the monitoring of a 100 day plan which is meticulously followed and actioned post completion.

Engaging with sector experienced advisors right at the start helps put the correct building blocks in place and makes navigating future growth and evolution easier as you build on a successful foundation. When looking to secure external funding as the business evolves, this can lead to a smoother process as many of the ingredients a lender or investor will want to see will already be in place. Look to your accountants and lawyers for insights and guidance to support your growth ambitions and to find the right specialist lenders to support you with the next business critical event.

Equally, when planning external funding, consider the long-term business partnership you’re building, the sector knowledge the lender has and the time and effort they deploy in understanding your full requirements. An experienced lender will ask more complex questions, and quite often structure a solution that was not on the cards initially but delivers a more suitable outcome for the client. This solid relationship between lender and client can then also support and streamline future transactions as the company grows.

Solid foundations, incorporating an experienced management team, the right systems, a good strategy and careful planning, are the cornerstones of a successful business. Addressing these elements at the beginning of the journey ensures that business owners will be ready to scale up when growth is on the cards!