One of the major doom and gloom statistics reported in the news is that banks are lending less and, in particular, are lending less to smaller businesses.

Photo by Lucy Hill

I checked some of the figures out at the Bank of England’s website, and they say that banks have lent 4% less money this year than they did last year. But then I thought, hold on a minute, that’s 4% less than last year – 4% isn’t that much, is it? And then I delved a little deeper into the Bank of England figures, to find that they think that banks are lending, albeit less than a few years ago, and that although they say the availability of credit for small businesses is “variable”, the banks are lending to some small businesses.

Which fits with what I’m seeing with the companies I’m working with – there is money available, but the banks are being very choosy about who they lend to.

So much for the doom and gloom: how do we get some of that bank finance into your business?

You have two options here. You can either borrow personally and put that into the business, or you can get the business to borrow the money directly.

When and why is personal borrowing a good idea?

You might want to borrow the money yourself if you can get a better interest rate through remortgaging your house. Mortgage rates are 2-4%, whereas business loans are 9-12.5%. However, remortgaging is a hassle, so this is only worthwhile if you need upwards of 10k. Even a personal loan (rather than a mortgage) will often be less time consuming and at a better interest rate than a commercial loan to the business.

If you need less than 10k, say to pay for some business advice, a rebrand and a new website, you’d probably be better off getting a 0% credit card, and making sure that you pay it off before the 0% bit turns into 26%.

Remember that if you borrow personally, you’ll have to pay it back yourself if anything goes wrong, so you’re taking the liability yourself, not the business.

Getting the company to borrow the money

If you want to limit the potential liability to yourself, or if you don’t have enough equity in your house to remortgage, and you need more than 10k for the business, you’ll probably want to get the business to borrow the money. I’m assuming that you’re a limited company here, by the way – if you’re a sole trader or a partnership and you borrow the money, it’s exactly the same as borrowing the money yourself.

In this case, you’ll want a commercial loan. Here are some tips to help you get the bank to lend you money:

• Banks like you if you’ve been going for a few years, and you have been producing profits for a while. Their rule of thumb is that they’ll lend you 3 times your net profit, plus the director’s drawings.
• Banks will want to see a good (but brief) business plan, with a clear focus on how you’ll be able to pay back the money you want to borrow. Remember that the banks want to lend you money, as long as they are confident that they’ll get it back, because that’s how they make their giant profits.
• Do be prepared to offer a personal guarantee. They’ll definitely ask for it, and if they don’t ask at the beginning, they’ll sneak it in later.
• Banks will also ask you for security. Remember, they want to be absolutely certain that they’ll get their money back, so they’ll ask you to back it with a second charge on your house. Providing security makes it more likely that you’ll get the loan, but you have to think carefully about the increased risk to you.
• If you can get someone else to put some money in, or you can put some in yourself, this will make the bank more likely to lend to you.
• Banks prefer it if you’re buying things. They would prefer you to borrow to buy a new truck than a website, even if the website is going to generate lots of new business for you. Old fashioned and ludicrous, but that’s the way it works.
• Go to lots of banks, not just the one you have your current account with.

If you don’t have any assets for security, consider the Enterprise Finance Guarantee, where the government will guarantee 75% of the loan, which makes the banks more likely to lend to you. They’ll still ask for a personal guarantee, and EFG loans are more expensive, but it’s definitely an option.

This article is one of a series on how to get money into your business so before you run off and borrow money, check out my guide to the organic cashflow model (which I always prefer to borrowing) and subscribe to the series to make sure you get all the instalments.  And of course, if you need some help with getting money into your business, do get in touch for a chat to see how I can help you.

Lots of businesses grow very slowly. Or don’t grow at all. They do the same as they did last year, maybe producing a nice little income that they’ve got used to. I’m not really interested in those businesses, even though they’re probably doing lovely things.

Photo by S Falkow

I’m interested in the businesses who want to expand and grow. The people who are ambitious, who want to do new things, the business owners who want to see a real difference in their company, and the people who want to make some real money for a change.

These are the people I work with at the Joy of Business. They’re not power mad, money grabbing uber-capitalists; they’re business owners just like you, and they have taken a decision to have a “grown up” business and want to create something bigger and better than they have at the moment.

Often, but not always, you need some extra cash to grow your business. You might need to employ someone else to do some or all of the work while you concentrate on a new area of the business or spend your time on sales and marketing. So you need some extra money to make sure you can pay that person.

Maybe you need to rebrand the business, and start taking your marketing seriously. You need to commission a new look, a website which attracts customers, and some copy which explains why someone should buy from you.

Sometimes you can see a very profitable potential area of your business which you’re not currently making the most of. You need to spend some cash to develop something new, which is going to be your killer app – the one that will revolutionise your business. I see lots of businesses where the business owners have seen an opportunity, but haven’t had the time to develop this.

All of these situations boil down to the fact that you don’t have any surplus in the business. Either you don’t have the cash to commission a new website, or you’re so busy chasing the jobs which are going to pay the bills right now that you don’t have time to do the things which are going to pay off your mortgage in 3 years time.

How to lose half a million quid

I had a service business client 5 years ago. They’d identified a software product they could make which I guessed would sell about 100k per year, if not more. It was hot. They’d done about 80% of the coding, but it needed finishing off. At every meeting, I asked them how the product development was coming along. Every time, the reply was that they hadn’t had time to work on it, because their software developer was doing client work.

I bumped into the director a few weeks ago and he told me that they were finally almost ready to launch the product. I was happy for him, but thought of the money they’d lost in the meantime. 5 years at 100k pa, they’d lost half a million, most of which would have been pure profit. And then I Googled the type of product, and saw at least 10 different competitors, none of whom had been there when they had first thought of this product. So now they’re competing with all these other companies, and they’ve sacrificed about .5m of income. They probably made about 30k on the client work their developer was doing.

Don’t let this happen to you

Don’t let this happen to you. If you have a plan, or even just the desire to grow your business, and the lack of cash is holding you back, you can find the cash. Over the next couple of weeks I’ll be looking at different options for getting money into your business, whether it’s 3k for a website revamp, 10k for a temporary software developer or 100k to develop a new business area.

It’s possible – and it’s up to you. Of course, if you’d like some help with it, or a reality check to see if it is possible – get in touch for a chat

I keep talking about this idea of a grown up business, and it’s one which seems to resonate with a lot of the business advice clients I work with. But what do I mean by a grown up business, and why would you want to be one?

Photo by M.C.P.

The features of a grown up business

A grown up business is one where the owners have decided that they’re going to do things properly. They’re going to have proper systems which can cope with more customers and more work. A grown up business will probably have employment contracts for the staff and freelancer agreements for the associates. They’ll probably be using a proper accounts package, and maybe getting a bookkeeper to do all the numbers for them.

A grown up business is focussed on making decent money

They’re going to make some serious money, whatever that means to them. For some of the businesses I work with this means building a business worth a few million, and for others it can mean getting to an income of 50-60k pa.

Not doing all the work yourself

The owners in a grown up business will be delegating some, or all, of the work to other people, so that they can concentrate on growing the business. They’ll be focussing on supporting the other people in the business so they can do their job well, co-ordinating all the activities, and taking responsibility for the sales and marketing.

Do you want to be a grown up business? Meet me for a coffee and a chat, and let’s see how we can get you there.

When I see a business which needs some money to do new things, the first thing I’ll consider is the organic cash flow model. This is where you expand the company using money which is already coming into the business, or increase the amount of money coming into the business in order to pay for the expansion.

Photo by Bashed

For example, if you need to take on a new member of staff, I would work out how much that person is going to cost. Roughly, I’d advise that you have 3 months of salary + NI + the cost of their desk space, computer etc in the bank as a cushion before you take someone on. Some people prefer 6 months as a rule of thumb for a little more security, or if it’s going to take a bit longer for the new person to help you to earn more money. We’d then look at how your business could afford to do this.

But I don’t have enough turnover

Many of my business advice clients want to take on a new member of staff, or improve their website, but believe that they don’t have enough money coming in to finance it.  They have been waiting until they have enough cash to be able to afford it, but a lot of businesses seem to get stuck at a certain level of turnover.

And if you decide that you’ll wait until magically you can afford that new person, you’ll always be waiting.

You need an artificial way to raise your ceiling, so that you can get enough money to get the new person, or afford the rebrand, or take time out from selling services to develop your new project.

How to raise your ceiling

There are two ways to get the extra money you need. Firstly, you can cut back on how much money you take out of the business. Do you really need that extra latte? Maybe you don’t need to buy those new shoes right now. Can you get a better deal on your mortgage? These are all good things to check anyway, just for the sake of your financial health. If this sounds like an area you could do with thinking through, speak to Simonne Gnessen, who is extremely skilled at helping you negotiate the personal financial minefields.

Secondly, you can decide to increase your turnover in the short term. Can you put up your prices a little? I bet you haven’t increased your rates since you first heard the words “credit” and “crunch” put together in a sentence. Can you squeeze another couple of customers in? Can you be slightly more assertive in your marketing, or go to a few more networking events, so there’s a little more money coming in each month?

Targets

If you apply this to your own business, you can set a target for the extra money you need. Maybe you’re a techie type company and you want to move away from developing websites for clients and towards your own online products. Identify how much money you would need to step away (or partly step away) from client work for a few months, and work towards this.

I highly recommend putting the extra money into a separate savings account, preferably on a standing order each month. Although you’ve still got exactly the same amount of money, splitting it between two accounts means that you’re more likely to save it up, whereas if you leave it in the regular business account, somehow it’s more likely to disappear.

Key points

This is a fairly long post, so I’ll sum up the main things to remember:

• Decide what’s going to make your business zoom in the future
• Work out how much money you’ll need to do this, both as a one off cost (e.g. new website) and as an ongoing cost (e.g. staff salaries, ongoing marketing costs)
• Set a target to save up
• Work out how to save up the extra – reduce spending and bring more in
• Put the money away so you don’t get used to it

Applying this to your business

If you are serious about having a grown up business, and recognise that you need to bring some money in to do this, watch out for the other posts I’m going to be writing soon about other ways of getting cash into your business to fuel growth. I’d advise subscribing so you don’t miss anything.

And if you can’t wait, or if you’d like to talk through the implications for your business, do feel free to get in touch and see if I can help you to make all this into reality.

You might know that I have another company besides the Joy of Business – Tender Winner.  There’s some cross over between the two businesses, as tendering for contracts is often part of the high growth strategies I help my Joy of Business clients develop. So I thought I’d talk about whether tendering might be a good idea for you.  If you want to find out more about tendering, or other ways to grow your business, then do get in touch for a chat.

When is tendering a good idea for your company?

Sometimes, I do end up telling people that tendering isn’t right for them – it just isn’t a good fit. I’d rather do this than take their money to find and bid for contracts they have no hope of winning.  Not only is this the only ethical choice, with the Tender Winner money back guarantee, I’d end up processing a lot of refunds.

So when should you think about tendering as part of your business development strategy?

Tendering works really well for companies who are big enough to handle a substantial new contract, but are still ambitious enough to want to grow.  You have to be hungry for new business, but your company can’t be starving in the meantime.  As a rule of thumb, if the contracts you’re looking at are more than 20% of your current turnover, then they’re the wrong contracts for you.  You won’t get past the prequalification questionnaire stage, and you’ll be wasting your time.  Find some other opportunities, or ask us to do the research for you.

Tendering also works well for companies who sell products and services which can be judged on price.  Printing, cleaning, graphic design, these can all be judged on price as, rightly or wrongly, they’re seen as commodity services where one supplier is probably as good as another.  Don’t think that tendering is only for standard products and services though – if you look at the Tender Winner highlighted tenders you’ll see that there are all sorts of weird and wonderful contracts out there.

Tendering for business is usually a medium term way of generating business.  The tender process might take 6 months, and then the contract might not start for another 6 months.  So you have to have the patience, and the cashflow, to be able to play a long game.

And you won’t win all of the tenders you bid for.  Not even the people who have been through the Tender Winner Win More Analysis win all of the time, so your company needs to be able to risk not getting the work.  But of course, when you do get the work, it can be a substantial new contract for you, and lead to more work in the future.