3 Things You Must Do Before Applying For Business Finance

3 THINGS YOU MUST DO BEFORE APPLYING FOR BUSINESS FINANCE Funding and Business Growth Playbook T: 0330 350 3356 @: hello@GrowingYourNumbers.com www: growingyournumbers.com

A BULLETPROOF Way to Get Your Funding Application Approved

1. Optimise your Cash Flow, free the working capital tied up in your business, possibly even avoid the need to borrow, or as a minimum, minimise the amount you need, AND increase the chances of doing so successfully.

2. Lenders always seek to minimise risk, so you must convince them lending to YOUR business is a safe bet, to do this you must provide evidence your business is financially sound and make sure there are no skeletons in your closet.

3. Preparing a robust funding proposal that provides everything your lender will need to maximise the chances that your application will be successful, AND secure finance on the best possible terms.

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If you know what you are doing this is relatively easy to achieve. To stack the odds in your favour, let’s explore each of the above in more detail, but before we dive in, a bit more about the overall goal of this guide / Playbook.

Most businesses are run by hard working, passionate entrepreneurs, who are great at what they do, but all too frequently, learning ‘how to run a business’ is something you picked up from the school of hard knocks.

Example: A doctor is trained to treat patients, not how to run the hospital. A lawyer is trained in matters legal, not how to run a business, even if the business happens to be a legal practice. A tradesman is trained to carry out their trade, not how to run a building company, the list goes on …

If you have not been educated in how a well-run business with sound financial management works, you are unlikely to have robust financial controls. No-one will have explained what a robust funding proposal should include. When time is your most precious resource, where do you go for help? This Playbook addresses all the above, and much more, but let’s start with the topic of the day, the need to get your hands on more cash, or as accountants and bankers describe it, how to improve ‘liquidity / Working C apital’.

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We will start by focussing in on the three key topics that are key to successfully accessing funding and then expand on these to provide you with a template for the ongoing management and successful growth of your business. Think of it as a plan for you as the owner, on your journey from start-up through to growth. You need a road map for successfully building and extracting maximum value from your business when the time come to exit / sell, as it inevitably does for all of us.

Sort Out Your Cash Flow

For many businesses, there is considerable ‘working capital’ tied up in the business. With the right systems, processes and procedures, this can be converted into cash that could mean you don’t need to borrow at all or dramatically reduce the amount you need to borrow.

Evidence that your working capital management is under control is one of the key factors lenders will look for, so this is the obvious place to start.

There are three key ‘Cash Flow Drivers ’ , and whilst on the topic of ‘Drivers’ there are also six key ‘Profit Drivers’ , collectively these are referred to as the Business Growth Drivers, more about profit later, for now we are going to focus on the three Cash Flow Drivers. If you have a well-run business, you will know what they are at any moment in time and be clear on the current ‘ direction of travel ’ , i.e., are you heading in the right or the wrong direction. For most of us some things will be going well, some less so, but unless you are tracking the right information, the detail is seldom clear, making it difficult to know which lever to pull to get back on track when things are not where they ought to be.

The three Cash Flow Drivers:

Debtor Days: How long it takes your customers to pay you

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Creditor Days: How long you take to pay your suppliers

Stock Days: How many days stock you have tied up in your business

These are incredibly important, because how you manage these three Business Drivers has a direct impact on total Working Capital or Cash you will need to run your business.

Depending on the type of finance you end up applying for, to a greater or lesser extent, this will be one of the key factors lenders will look at when deciding how much risk is associated with lending to your business.

Debtor Days and Accounts Receivable: If you provide your customers with credit, your Accounts Receivable is the total amount of your money you are owed by your customers.

There are huge differences between how long customers take to pay. Even for businesses that in every other regard are identical, how long it takes customers to pay varies considerably. Businesses with a professional ‘Credit Control’ process enjoy a distinct advantage over those that don’t . Why? Because their business needs less working capital or cash to run and ironically, they will find it easier to access finance when needed, and they will receive better terms. What’s a Debtor Day? Each Debtor Day has a financial value, in the example used below, for each day Debtor Days increase or decrease, this has a cash impact of £2,702. If each day equals £2,702, a one-day decrease in Debtor Days, will reduce the bank balance, and a one day increase in Debtor Days will decrease the bank balance by that amount. Just think: A 10-day reduction in Debtor Days would have the same impact on the business as borrowing £27,020. Without interest or repayments, no personal guarantee, no security and ironically the business’ s credit rating will also be better, more about credit ratings in a moment.

Think of Debtor Days and Accounts Receivable like this: You are lending money to your customers

Your customers are using you as a bank, all too often, they are borrowing money from you at 0% interest (rather than borrowing money from their own bank). If you are like most businesses, you are doing exactly the same thing, which brings us to Creditor Days … There is only so much we can cover in a short introduction. To find out more and to obtain your step-by-step checklist of things you can do to reduce Debtor Days and put cash in the bank, most of which will cost you nothing what-so-ever to implement, register to join the upcoming Funding and Business Growth Seminar.

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Creditor Days and Accounts Payable: If you purchase goods or services on credit, you are borrowing from your suppliers. Within reason your objective is to borrow as much as possible from your suppliers as this will both improve your cash flow and reduce the need to source external finance. There are a host of considerations with regards to the best, or most ethical strategy to adopt with regards to paying suppliers and there is a lot of abuse of power on the part of some buyers, but that is beyond the scope of this document, for now we are going to purely focus on the mechanics and the resulting impact on your bank balance.

In a nutshell, the sooner you pay your suppliers, the worse it is for your cash flow and your bank balance.

You would logically seek to negotiate the best possible payment terms and take as long as possible to pay suppliers for one simple reason, it will keep your money in your bank for as long as possible, but…

… it is not quite so black and white. Provided your business has sufficient working capital, you might be more profitable negotiating lower prices, and hence more profit in return for prompt payment. There are a number of very good reasons why not paying suppliers on time can have undesirable ramifications, not only for supplier relations, for example suppliers may refuse to work with you or cut your credit terms, which could be disastrous for cash flow.

Not paying suppliers can also have an adverse effect on your business ’ s

credit rating, which could have negative ramifications that we will cover in a moment.

As with many things in business, depending on circumstances, exactly what strategy and tactics you adopt may vary , but for the purpose of this exercise, we are going to assume ‘Cash is King’ and we don’t have the luxury of surplus cash and we need to find the optimum balance … What’s a Creditor Day? As with Debtor Days, each Creditor Day has a financial value. Using the business in the example business below, each Creditor Day is worth £2,530. Unlike Debtor Days, each additional day taken to pay suppliers has a positive impact on the bank to the tune of £2,530. If this were your business, and you needed to find £25,000 for your business, and each Creditor Day was worth £2,530, if you could find ways to make suppliers wait 10 more days before being paid, this would have the same impact as taking out a £25,000 loan.

Think of Creditor Days and Accounts Payable like this: You are lending money to your customers.

Putting the two together, if you needed to raise £50K, and your business was similar to the example below, then with an appropriate Credit Control process, you could potentially release £50,000 from your existing business, simply by decreasing Debtor and Creditor Days by 10.

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To find out more, and to obtain your step-by-step checklist of things you can do to improve Creditor Days without compromising supplier relationships, and put cash in the bank at no cost, simply register to join the upcoming Funding and Business Growth Seminar by clicking on the link below.

Having looked at Debtors and Creditors, there is one more Cash Flow Driver…

Stock Days, Stock, Work in Progress:

The first of these, Stock, is easy to understand, and account for because it sits on a shelf and can normally be counted, which is what happens every time you complete a stock take. Work in Progress can be harder to track, but it is equally if not more important to record, track and control.

There are lots of strategies and techniques you can use to better manage stock and work in progress, but as with Debtors and Creditors, it is helpful if you are able to convert something that could be seen to be somewhat abstract, ‘Stock Days’ and express it in monetary terms. In the example below each Stock Day is worth £1,860, so if it were possible (and prudent) to do so, reducing stock levels and hence Stock Days by 10 would generate an additional £18,600 of cash within the business.

You should be aiming to improve / optimise all three: Debtors, Creditors and Stock, by tracking each, setting targets for improvement and then reporting and reviewing progress as you improve each, month-by-month.

When you know how, this is quick and easy to do, because the raw data is automatically stored in your accounting system and is readily available, so all you have to do is take steps to improve and watch your cash flow improve. As you will now appreciate, if your business is similar to the company described below, reducing Debtor Days and Stock Days, and increasing Creditor Days by 10, the bank balance would be improved by £70,920. (Debtors = £27,020 + Creditors = £25,300 + Stock = £18,600). To find out more, and to obtain your step-by-step checklist of things you can do to reduce Debtor Days, optimise Stock / Work in Progress and Creditor Days, and see the cash come rolling in, click the link below to reserve your place on the upcoming Funding and Business Growth Seminar.

Optimising Cash Flow Drivers could potentially solve many cash flow / liquidity problems, potentially eliminating the need to borrow, or substantially reducing the total amount needed.

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At the same time, improving your Cash Flow management could also help improve your Credit Rating making it much more likely the company will be able to successful, which brings us nicely to point two:

Lenders always seek to minimise risk, so you must convince them lending to YOUR business is a safe bet, to do this you must provide evidence your business is financially sound, make sure there are no skeletons in your closet.

Let’s explore the topic of eliminating skeletons in more detail now…

Evidence Your Business is Financially Sound

If your business is managed well, you will be on top of your numbers and be able to provide ample evidence of this in the form of management reports.

A well-run business will plan, budget, forecast sales, and costs and regularly report and review financial performance using Management Accounts.

If you use accounting software, producing management information for lenders is easy, provided your bookkeeping is accurate and up to date, this will be a pre-requisite for demonstrating your financial controls are in place and are reliable.

One key issue that is of paramount importance when it comes to applying for finance in any form, is your credit rating.

Every business must submit an annual return. Statutory Accounts and other financial information about your business ends up being monitored by the Credit Rating Agencies, so what is happening to your financial performance will directly impact your Credit Rating.

We all know they exist, but for most, how Credit Ratings work is a bit of a black art. Your Credit Ratings are important for several reasons …

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It is not just lenders who use the Credit Ratings Agencies:

• Suppliers use Credit Ratings to track the credit worthiness of their customers. This includes some less obvious suppliers, for example insurers, utility companies, landlords, as well as the suppliers you rely on for the raw materials and labour you need to build your finished product ready for sale. If your credit rating is downgraded, possibly without you knowing, you may suddenly find your credit limits are substantially reduced for no apparent reason, or worst, you may not be able to obtain goods or services on credit and will need to pay cash in advance to continue trading.

Impact: Creditor days reduced = a potentially major and immediate cash flow problem.

• Buyers also check the Credit Ratings of their suppliers to minimise the risk to their continuity of supply which means customers could stop buying, reduce purchase volumes and/or bring in other competitive suppliers, introducing even more price pressure. What would happen if your customers started to reduce the volume they purchase from you, or as a result of evaluating other potential competitive suppliers, they were to reduce the prices they pay and hence reduce your gross profit margin?

Impact: Sales Volumes and Profit margins could be reduced = the perfect storm

• Public Sector and other organisations regularly put work out to competitive tender. When they do so, part of their ‘due diligence’ will include regular credit checks on the companies they invite to tender. Professional buyers will protect their own position and that of the organisations they work for by only allowing suppliers with a good credit rating to remain on their tender list. If your credit rating gets downgraded, you may suddenly find you have been removed from tender lists.

Impact: Sales opportunities dry up making it harder to maintain turnover levels = still more pressure and an ever worst and deteriorating revenue, profitability, and cash flow problems.

• Lenders avoid unnecessary risk. If your company credit rating is poor, it is extremely unlikely you will be approved for debt funding unless you are able to provide personal guarantees or you can borrow against assets such as buildings, stock, machinery, outstanding invoices or the like…

Impact: If you need cash to run payroll at the end of the month, this could be game over. At best your options for investment and growth have just become significantly more limited.

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Growing Your Numbers is a trading style of VFD Pro Ltd © VFD Pro Ltd, 2021. Registered in England and Wales No. 11210237

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3 THINGS YOU MUST DO BEFORE APPLYING FOR BUSINESS FINANCE Funding and Business Growth Playbook T: 0330 350 3356 @: hello@GrowingYourNumbers.com www: growingyournumbers.com

To find out more about Credit Ratings and how you can improve yours, click the link below to reserve your place on the upcoming Funding and Business Growth Seminar.

There are several Credit Ratings Agencies and somewhat unhelpfully, they don’t provide a uniform assessment credit rating so you credit rating could vary considerably from one agency to another.

To make things even more unpredictable, Credit Ratings Agencies don’t update their ratings at the same time, introducing yet another variable into the equation.

Your suppliers, customers, or lenders are potentially all using a different Credit Ratings Agency, which means some might perceive an increased risk and downgrade your credit rating and act, whilst others do not.

You may feel that all this is impossible to co ntrol or stay on top of, but don’t panic, because there is a solution, but first it might be helpful to consider the reasons why Credit Ratings change over time.

Here are six of the more common reasons Credit Ratings change...

Six Reasons Why Your Credit Rating May Change

• When your financial results are posted – if there is an adverse movement in:

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Growing Your Numbers is a trading style of VFD Pro Ltd © VFD Pro Ltd, 2021. Registered in England and Wales No. 11210237

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3 THINGS YOU MUST DO BEFORE APPLYING FOR BUSINESS FINANCE Funding and Business Growth Playbook T: 0330 350 3356 @: hello@GrowingYourNumbers.com www: growingyournumbers.com o Turnover, profitability, and key trading ratios o Current assets – Cash, stock, investments, and other assets o Liabilities – Salaries, tax, loans, mortgages • Audit information – Any adverse Auditors comments on your Audit Report

• Your Payment history – Outstanding debt and how long it takes you to pay suppliers

• Company age – Older companies have more history for analysis

• Company size – Larger companies are treated differently to smaller companies

• County Court Judgements (CCJ) – Number, frequency, value. All will negatively impact your rating

• Filing accounts on time – Late filing will lower your credit rating

• Directors – The directors personal credit rating and circumstances

Right now, regrettably the greatest risk to credit ratings is potentially already totally outside of your control …

During the Covid disruption many businesses have taken out loans, either out of necessity or simply because it made sense considering the government support and the uniquely advantageous terms being offered.

In many cases businesses have also taken advantage of opportunities for delayed payment terms on outstanding monies owned to Her Majesty’s Revenue and Customs.

It goes without saying, many businesses had seen turnover and profit significantly impacted by the various Covid lockdowns and related disruption.

What is probably less obvious is that when the company accounts are filed, these changes are picked up by the Credit Rating agencies resulting in potentially significant reductions in Credit Ratings and some extremely unpleasant and unexpected ramifications.

To find out more about Credit Ratings and how they can have some worrying ramifications, click the link below to reserve your place on the upcoming Funding and Business Growth Seminar.

Let’s look at just one scary ramification that could be catastrophic for some businesses, because if you know in advance that this might happen, then you have a chance to do something about it before it is too late, utility costs…

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Unexpected Ramifications – Utility Costs

All gas and electricity suppliers routinely check their customers credit rating before renewing contracts and they’re even more cautious when reviewing new clients. The threshold rating for renewal and acquisition offers has been substantially raised. As we all know utility costs are going up by between 100% to 200%, so a business that paid £30,000 for their utilities last year, will need to budget an additional £30,000 to £60,000 for next year’s supply.

Now consider this situation: What would happen if without you knowing it, your credit rating had been downgraded, this may not impact you immediately, so you are likely to be totally unaware.

When the time comes to renew your gas and/or electricity contract, your supplier will conduct a credit search and conclude you are not a safe risk…

Your current supplier may turn you down, forcing you to find a new supplier. Energy providers will demand a 6-month deposit, payable in advance and held in Escrow until the end of the contract.

If that is your business, and the bill for utilities is likely to be £90,000 next year, you will potentially need to find an additional £45,000, just to pay the deposit, and that is on top of the higher bills… Ouch!

What happens if you can’t immediately lay you r hands on the cash you need to pay the deposit, what are your options? Y ou can’t continue to run your business without power…

To raise the money needed to pay the deposit, you may need to borrow, but the only reason you are in this position in the first place is because your credit rating is poor, so you are likely to find it hard to borrow, or at best you will have to accept adverse terms… which could potentially be catastrophic, but don’t panic…

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…b ecause w hat most people don’t know, is this:

1. You can find out in advance what you credit rating is across all major credit ratings agencies

AND

2. You can frequently take rapid action to correct your credit rating if necessary

The Credit Rating Agencies always look at the worst-case scenario, but if you know what you are doing, (or know someone who does), this potentially catastrophic situation can be avoided with a bit of preparation.

Discover how to avoid having to address nasty ramifications from a credit rating downgrade, by clicking on the link below to reserve your place on the upcoming Funding and Business Growth Seminar.

This leaves us with just one more topic to cover before we look at strategies to ‘Grow Your Business’, how to create a robust funding proposal …

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What Constitutes a Robust Funding Proposal? For some bizarre reason, what lenders are looking for when they assess an application for funding appears to be one of the world’s best kept secrets. However, if you know what to look for it is all readily available on the internet.

Lenders use an Acronym: CAMPARI and ICE. If you want to look it up for yourself, search for ‘ CAMPARI & ICE Lending Criteria ’, or to save you time, keep reading…

The CAMPARI model is widely used as an assessment framework by lenders when businesses apply for lending. It acts as a ‘check list’ to ensure the loan require ments have been fully considered, CAMPARI stands for…

Character

✓ ✓ ✓ ✓ ✓ ✓ ✓

Ability Means

Purpose Amount

Repayment Insurance

Let’s briefly look at each of these in turn…

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Character

Lenders must have confidence in you.

Providing a loan facility is a gamble for them, so they want to know if you have a good track record of borrowing? Can you be trusted to repay the loan?

You will need to show evidence of a good trading history and the ability to provide quality services while making a profit.

Considerations: Your financial history, credit report (personally and as a business), background and experience, business premises, current assets and your age versus the length of the loan.

Ability

Your capability to successfully run your business.

You will need to provide the lender with tangible examples of past achievements, they need to ‘buy in’ to your vision for your business.

You need to demonstrate a complete understanding of your market and complete a SWOT analysis to evidence your level of thinking.

Considerations: Your direct sector experience, relevant qualifications, this includes your team, operational structure, business history and succession plan.

Means / Margin

Your ability to service the loan.

Providing a loan facility is a gamble. The more confidence there is in your ability to service the debt, the greater your chances of success.

Considerations: Make your plan logical. A poorly conceived or hard to understand plan will significantly reduce your chances of success.

Purpose

Clearly show why you need the money.

Is the money being used to develop the business? Can you prove why you need it?

This must be clearly explained within your business plan. Whatever the reason for the loan, you need to show that it’s a good reason, and one that will generate a return.

Considerations: The nature of your business and the sector in which you operate. The purpose must be legal, ethical and relevant.

Amount

Exactly how much do you need to borrow.

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You need to justify the loan amount and outline what you are contributing. You’ll need to show that it is sufficient for your needs. Don’t ask for too much, and don’t ask for too little , include a contingency.

Your financial projections must seem reasonable. You need to show precisely how the money will be spent. This is more than outlining the purpose of the loan. You need to explain how you’ve arrived at the figure you’re requesting.

Considerations: Your cashflow and ‘profit and loss’ forecasts are essential. Provide a fully costed breakdown with a contingency built in.

Repayment

How and when will this be repaid.

Lenders must be confident you’ll meet repayment terms or your application will get rejected. Do you have a history of loan repayments? Have you been profitable in the past and are you forecasting to be in the future?

Be prepared to show previous accounts and management reports. Cashflow forecasts will be es sential. Don’t exaggerate forecasts or profit margins.

Considerations: is the source of repayment clear, is the period of the loan acceptable, what other recourse does the lender have if the business fails. Don’t forget the potential risk if your loan is secured.

Insurance

The level of risk to the lender.

What is the nature, type and value of the security you are offering to the lender?

Be prepared for the lender to take a charge over property or ask for personal guarantees. Lenders will always want to remove any level of risk.

Considerations: Do you have an up-to-date valuation of assets?

CAMPARI & ICE

Interest Interest rate, repayment structure, length of the loan. Commission Arrangement fee typically based on % of loan amount.

Extras Examples: Buildings, contents, public liability, key man insurance, health & safety. All the policies needed to ensure you and the lender are adequately protected. Make sure all these costs are identified in your business ’ s plan.

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All of this detail may sound daunting, an almost impossible list of demands just to borrow money, but so long as your accounts are accurate and up to date, (and telling the right story), producing all of the above is easier than you might think. In many cases, if your circumstances are not so complex, then simply completing the appropriate application form will often be all you need to do, but for more complicated or involved lending decisions your chances of being successful are much enhanced if you provide ALL of the information lenders need to evaluate your application in one go.

The underwriters who will assess your application are extremely busy, so the easier you can make it for them to say yes, the more likely your application will be to end up on the ‘yes’ pile.

To obtain an example Funding Proposal that provides all the information lenders will ideally see in your funding proposal, click the link below and reserve your place on the upcoming Funding and Business Growth Seminar.

A BULLETPROOF way to get your Funding Application Approved

Recap:

Optimise your Cash Flow. You now know more about how you can free the working capital tied up in your business. Potentially avoiding the need to borrow, or minimising the amount you need, whilst also increasing your chances of being successful.

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To find out much more and to obtain the step-by-step check list to help you make it happen, join the upcoming Funding and Business Growth Seminar.

Evidence your business is financially sound. You now know why credit ratings are so incredibly important and contrary to popular belief, there is something you can do to improve a busted credit rating , you don’t jus t have to accept your lot.

To find out exactly how, join the upcoming Funding and Business Growth Seminar.

Preparing a robust Funding Proposal we have provided an overview of what you need to put into your Funding Proposal, to receive a template you can copy and to discover how easy it can be to create a fully populated Funding Proposal that will meet the most exacting lender’s needs , join the upcoming Funding and Business Growth Seminar.

Becoming lendable is just one small part of building a successful business. Read on to discover how successful Entrepreneurs make effective use of Management Information to grow a successful business.

Going one step further, when the time comes, (as it inevitably does for all of us), how you can also exit successfully, building and extracting the maximum value from your business when you do eventually move onto something new, be that retirement or your next business venture.

How to Grow a Business

Introduction to Financial Management for Business Owners

Why are you in business, are you trying to build an empire, looking for financial freedom or are you a craft person practicing your trade.

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Everyone has a different goal, but whatever you do, your business should be the means to an end and to be successful, (whatever success means to you), you need to be clear on what you are trying to achieve and by when.

Those familiar with Alice in Wonderland will recall the conversation between Alice and the Cheshire Cat …

What is right for one person is not necessarily right for another because we all have different goals, aspirations and time scales, so before you start your journey it helps to know where you want to end up.

Start with the end in mind.

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What are your dreams, your goals, your aspirations in your future ideal world - you will presumably invest your time each day doing whatever it is your heart desires and unless you are already ‘living the dream’ I guess you will not spend every day doing what you are doing right now?

Ask yourself the question:

How will your life be different?

If you don’t know where you are going how will you know you have arrived when you get there?

As an entrepreneur your business is far more than just a source of income and one thing is certain, like it or not, at some point you will have no choice but to exit your business by one means or another…

You may exit to enjoy a better work life balance or for health reasons (you or someone in your immediate family), or ‘ other ’ reasons… the only thing that is certain, just like death and taxes, the day will come when you have no choice but to exit your business.

Some of the reasons people exit their business:

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For a Better

For Health Reasons (you or a loved one)

For Family Reasons

Death

Work / Life Balance

The big question therefore is this: Are you going to be able to exit your business, on your terms and at a time of your choosing or is your business going to fail before you get to wherever it is you want to get to?

Business Success – The Harsh Reality

If we look at the pre-Covid business survival rates the statistical chances of businesses ending successfully are not great. Below you will see the five-year survival rate for businesse s ‘born’ in the UK in 2014 is just 42.5%.

https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/businessdemography/2019

Just think, 42.5% survive, that means nearly 60% will fail. But is not failing success, clearly not, that simply means you are still in the race, to be successful you must end the race. What does that mean for you and your business?

Surviving to still be trading in 5 years is only a point on the journey. If your personal goals include a financial cash injection via a sale or management buy-out, when you want to Exit, the statistics are even worse…

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90% are not saleable, but of the 10% of businesses that are marketed for sale, more than 80% will not sell at all and of the remainder, less than 5% will sell for their expected valuation.

If you do the maths, the statistical chance of selling your business and achieving your expected valuation is:

The probability of selling your business:

• 42.5% probability of survival to year 5 x • 10% probability of being marketed for sale

(= 4.3% chance of getting this far)

x • 20% probability of achieving a sale

(=0.86% chance of getting this far)

X • 5% probability of achieving the expected valuation = • 0.0425% statistical chance of a successful exit

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Other than being a small number, 0.0425% does not make much sense to most, so another way to explain it: Only 1 in 2,222 entrepreneurs will live to see their baby, the business they have slaved to build, achieve a successful exit, one that delivers their expected financial outcome. Let’ s put this into perspective …

There were 5.86* million businesses in the UK in 2019. The vast majority do not have employees, for example crafts people, couriers, and contractors … these businesses make up nearly 76% of the total businesses in the UK.

Of the remainder, those that employ people, there were 1.4 million employers in the UK in 2019. http://www.gov.uk

If you are one of these, the objective of this Playbook is to provide you with practical, real world, low and no cost ideas, tips and pointers to help you maximise your chance of achieving a ‘Successful Outcome’ for your business.

The Optimum Strategy for Success: Measure what Matters – Lead vs Lag Indicators.

You need to understand and track your ‘Input Drivers’ , monitor and control the inputs and the outputs take care of themselves. Unfortunately, most businesses and their advisors spend all their time looking at outputs, rather than inputs.

Think of it this way: Revenue, profit and cash balance are outputs , or ‘Lag Indicators’ and you cannot control them. However, you can control the inputs, or the ‘Lead Indicators.

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Unfortunately, most businesses and their advisors, (for example Accountants), only use Lag Measures or Outputs for performance reporting - Examples: How much you sold, how much profit you made (or lost), how much cash is in the bank, this is all history, after the fact…

What is worse, for many business owners, the first time they get to see what they have done is 6 to 9 months after the year end, by which time the information really is ancient history.

To increase business success for the benefit of everyone, business owners, their employees, and the wider community businesses support through the taxes they pay, as business owners, we all need to start focusing attention on and working to improve the things that matter, the inputs not the outputs. Every business is different, and you will want to work to identify the Lead Indicators that are appropriate for you and your business, however there are a handful of Lead Indicators or Business Growth Drivers that are common to all businesses.

These are 6 Business Growth Drivers that are critical to your business success:

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If you understand and manage these 6 critical business drivers, continually hunting for ways to make small incremental gains, your ‘Outputs’ : sales, profitability and the value of your business will take care of themselves.

If you want help to better understand the Business Growth Drivers for your business, click the link below and reserve your place on the upcoming Funding and Business Growth Seminar.

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Where are you now?

As with any journey, before you start, you need to know where you are starting out from . If you don’t know where you are starting from you cannot plan your route and you won’t be able to track your progress.

The chances are you are in the same boat as most business owners. As time passes there are more and more pressures on you and your time, you absolutely must focus on delivering goods and services to customers, ordering supplies, managing people and there are always fires that need to be extinguished. When that’s done there is the admin and paperwork, chasing customers to pay their bills and dealing with red tape, and if you are lucky, you will also find time for sales and marketing to attract new customers and on, and on, and on it goes. To help us clarify the link between actions and financial results, we are going to use a real business, anonymised to protect the innocent, so please meet Alex who runs a Software Company providing bespoke software development, hosting and online services.

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Registered Office: 20-22 Wenlock Road, London, England, N1 7GU

3 THINGS YOU MUST DO BEFORE APPLYING FOR BUSINESS FINANCE Funding and Business Growth Playbook T: 0330 350 3356 @: hello@GrowingYourNumbers.com www: growingyournumbers.com

We can see what Alex’s business has achieved over the last two years and it is looking good, profits are up.

A quick look at Alex ’s Profit and Loss Statement this year vs last year shows a steady performance in terms of Revenue, remaining flat at just over £ 1 million with a substantial increase in the bottom line.

Net Profit is up from £60K to nearly £80K, driven by a margin improvement of 1% that added £10K to the bottom line, overheads are down by £10K, things are looking OK for Alex, the business and all who depend on its ongoing success

Net Profit is up by a third, so far so good. Presumably, Alex is happy with the performance of the business and is looking forward to a significantly larger dividend payment this year than last.

Remember, these are Lag Indicators, so let us Recap on the Lead Indicators and discuss each of the Business Growth Drivers in turn.

Average Transaction Value

Does Alex know the Average Transaction Value for the business? Do you know the Average Transaction Value for your business?

Average Transaction Value is one of your critical Key performance Indicators and it is easy to calculate:

Total Revenue divided by the Total Number of Transactions

If you need help working out what the Average Transaction Value is for business, your accountant should be able to tell you where to find the necessary information. So long as your Bookkeeping is accurate all the data you need is in your accounting system.

As soon as you know your Average Transaction Value, you can compare it to the prior period, e.g., this year vs last year to establish your underlying trend, or the current direction of travel.

As the saying goes:

‘ If you keep on doing what you are currently doing, you will keep on getting what you’ve already got’.

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