Brian Henderson – head of PwC’s fast growth companies programme – has pointed to crowdfunding and peer-to-peer lending as a viable source of funding for SMEs.
The private business specialist, in an interview with The Times, identified three integral elements of securing the support of investors:
- “Cash flow forecasts based on tangible data that go beyond the next twelve months are essential. Ensure that these are integrated with a robust profit and loss account and balance sheet and this will demonstrate that you understand how management information interacts and can be best used to run a business properly”.
- “Costs should be easy to forecast in most businesses, so failure to do this properly will be off-putting to lenders. Show how and when your cost base will increase due to investment for growth, but keep it flexible so that components within the machine (your business model) can work with each other if timings shift or things change”.
- “Successfully earning revenues is what will ultimately decide whether the businesses succeeds or fails. Revenue forecasts need to be backed up with hard data – what you have experienced to date; how this benchmarks with peers; whether growth projections are realistic and what’s really driving them”.
Henderson also advised borrowers to demonstrate their comprehension of the need for up-to-date forecasts by preparing for three scenarios:
- “First, an aspirational scenario or target which imagines getting the most out of your customers and business and can be used to incentivise staff to over-achieve”.
- “Next, a most-likely case based on reasonable but supportable assumptions with only modest stretch. This is the scenario you’ll be tested on in detail and is typically the one on which the investment decision would be made”.
- “And finally, a worst-case-scenario which outlines what happens if it all goes wrong and you need to take the business back to its bare bones and run it in survival mode to ensure you don’t run out of cash”.
Henderson’s advice serves as a useful guide for any entrepreneur looking to peer-to-peer lending or crowdfunding in order to fund a SME. The overarching message appears to be that turning away from traditional avenues in search of capital will require no less thorough preparation on the part of the entrepreneur, if he/she is to succeed.