Reap Management Series (10) Five things that make your business bankable and attractive to financier

Lack of finance is a familiar line when people list reasons for business failures. Entrepreneurs usually wonder why banks, investors and other fund providers cannot just read between the lines and see the big picture. Business plans have been written to demonstrate the strength of the ideas and yet someone who has loads of money to put into the idea is just not cooperating because he is not convinced that there is a tangible idea to back. This is the story of many frustrated entrepreneurs. Beautiful ideas, no financial support. As I usually say however, investors and bankers don’t invest in dreams; they back realities. In the search for realities, financiers look for things like these in the businesses of the entrepreneurs they want to fund:

1. Retail Potential

Nothing makes more sense to a financier than a business with a strong retail flavour. A strong retail presence is a symbol of fidelity between the buying public and a business. Wholesale businesses are usually fickle and susceptible to shocks-policy, regulatory, key-man etc. Retail spreads the message of a business across a broad spectrum. It is difficult for almost everybody to vote with their feet at the same if the business keeps doing what is right. So retail is fundamental as it guarantees stability.

2. Healthy cashflow

Turnover is vanity; profit is sanity while cashflow is reality; so says Greg Savage. Cash is king, according to Alex Spanos, an American Real Estate guru. Investors are hardly excited by businesses who make one billion naira in January and run dry till the next January. Financiers want a business with an everyday oxygen. Only cashflows guarantee such. What this means is that someone is usually knocking on the door of the business and that loan repayment may not be difficult when the time is due.

3. History

As pointed out earlier, dreams make little sense to an investor because it is what it is: a dream. Financiers want to see history and track records. They want to see the trends and cycles that shape the business. When is the peak season? What is the cash conversion cycle? How does the business react to weather conditions? History helps to diagnose problems and to predict. This is why a typical financier puts his money in an established business rather than a start-up.

4. Management

Many businesses are as good as the management. People represent the real balance sheet because they decide how the other balance sheet is utilised. Once, financiers see weaknesses in the quality of management a business has, they back off without blinking an eyelid. Therefore, entrepreneurs who need funding support must represent value in management with the right experience, education and exposure.

5. Corporate Governance

Equally important in the assessment matrix is the corporate governance structure. How

much of a republic is the company? Are there checks and balances? Is there separation of powers among the units? Is the owner the all-in-all? Are salaries delayed when the owner is not around? Financiers like companies that are beyond individuals. They believe that when companies have structures and systems, continuity is assured.

6. Potential for Scale

Companies are tiered by scale. A business escapes from the pedestrian level when portfolio expands into the multi-million or the billion leagues. At that point, the business becomes an elephant too big to ignore. Not all businesses will join the billion Naira club from day one but serious ones exhibit the potential from the get go. Silicon Valley’s Unicorn technology companies are valued in billions of dollars not because of the huge revenues they generate at the moment but for the promise of the future: the potential for billion dollars in revenues. for the billion

7. Strategy

Then finally, strategy. This is the crux of the matter. Strategy represents the pathology of the business: it is the DNA. It determines what the company does and how it does it. Does the company wait for others to lead so that it can follow? How does the company identify opportunities? Does it wait for the environment to point the direction or does the company direct the environment? Some companies have advanced their strategy to the level of directing the environment. They are able to do so because there is a strategic imperative to every move they make. And indeed, imperatives are not by accident; they are by design.