Financing fast growth

Managing cash flow paves the way for scaling

Crucially, scale-up leaders were quick to point out that fast growth does not always entail high profitability. The mantra of “cash is king" remains essential for scale-up business and companies should ensure they have a clear plan for managing cash flow.

Core advice from directors focused on making sure the senior leadership have a bird's eye view of the cash profile of the business, regularly assessing payment performance of customers and understanding the different working capital finance options available to the business such as invoice financing.

Actions for government

    • Ensure the Small Business Commissioner speaks out on the impact of late payment for high growth firms
    • Shorten the timeframe for the payment of the R&D tax credit by allowing companies to submit evidence of expenditure (e.g. PAYE records) in order to get paid in the same financial year
    • Raise the threshold for the Quarterly Instalment Payment of Corporation Tax from £1.5 to £5m

While the constraints of the credit crunch have rescinded, the finance landscape has changed significantly for fast growing businesses. From traditional bank debt, to alternative finance and increasing equity options – there are a diversity of choices for ambitious medium sized businesses.

"Angel investment enabled us to scale at a rate that matched our ambition. Prior to investment, the relationship with our angel was cultivated over many years – demonstrating the power of maintaining a great network."

1 Toby Austin, CEO and Co-Founder, Beauhurst

For longer term capital, scale-up teams emphasise the importance of being investment ready. When applying for finance, from bank lending to venture capital, there are a few factors businesses should keep in mind. A convincing strategy for growing the business is the most important step, while concrete risk management plans and verified financial accounts can be crucial differentiating factors. [1]

"We took the initiative to have fully audited accounts before it was legally necessary. This decision gave investors' confidence in our financial results and helped pave the way for further growth."

1 Greg Kirkman, Managing Director, Ensafe Consultants

4 tips scale-ups follow for using growth capital

1 Identify the need for the capital well ahead of the crunch point

"Love Home Swap formalised a new category of business – the home swap/rent. Raising money in a nascent sector was difficult – but grit, clear goals for the capital and raising it ahead of time proved successful."

1 Debbie Wosskow, CEO and Founder, Love Home Swap


2 Set clear goals for the use of the capital


3 Scope the market so that the capital is on terms suitable to the senior leadership

"We met with 10 different private equity investors before making a deal. The time investment was worth it as the new equity structure has unlocked the ability for senior managers to invest in the future of the business."

1 Martin Tucker, CEO, GatenbySanderson


4 Make sure any external investor is able to bring additional assets into the business, for instance knowledge of the sector or additional contacts


Scale-up case study

Name: Westons-Cider

Founded: 1880

Growth: £20m turnover growth in four years

Established in 1880, Westons Cider, is an independent family business that produces over 30 different ciders and perries that are exported around the world. Employing over 200 people the company has strong ambitions for growth to enable it to be a sustainable business for future generations.

In order to scale-up to the next level new funding was necessary, but maintaining the independence of the business was crucial to any finance agreement. Through developing a strong relationship with Lloyds Bank, Westons Cider was able to scale-up up without sacrificing its independence.

Now the company has set up a subsidiary in Australia and is growing the brand of the company around the world.

Actions for government

Increase the supply of long term capital for medium sized businesses

In our recent Stepping up report the CBI identified a series of actions that Government should take to increase the supply of long term finance for MSBs including:

    • Creating new Long Term Lending Trusts which offer income tax relief to savers investing in long term MSB debt funding
    • Changing the way the Enterprise Finance Guarantee works by rewarding lenders for providing longer-term loans
    • Make the UK the best place to list on a growth equity market by enabling companies listed on AIM to raise more capital from existing investors without needing to produce a prospectus

References

[1] CBI, 7 Smart Things Growing Companies Do, 2015

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