From XU Magazine, 
Issue 28

Getting in control of recovery for a stable future

Why your clients need a good funding strategy

We’ve seen plenty of talk about business survival over the past two years. But with restrictions lifted and the economy on the rise again, is it time for a change of topic? Now may be the ideal time to fan the flames of recovery and to start discussing growth and funding with your clients. Chris Findlow, Head of Partnerships at MarketFinance, believes it’s time to get in control of recovery and to begin planning and goal-setting for a more stable future.

Let’s talk about growth

It’s been a tough 18 months for your business clients. And probably an equally tough time for your accounting firm. You’ve been through the cycle of furlough payments, CBILS applications and emergency cash flow conversations. And your focus during this time will have been placed firmly on hand-holding clients through the challenges and kickstarting their recovery process.

The ‘survival and recovery’ message has been front and centre for most of 2021. But, here at MarketFinance, we believe the conversation is beginning to move beyond that. Many sectors are trading again, vaccinations are allowing people to go back to the workplace and the UK economy is gradually beginning to get back on track. In fact, Bank of England figures are predicting that the economy is still robust and will grow 7.25%, despite the pingdemic. Not something we could have predicted a year ago!

Business owners may still be finding their feet after a year and a half of COVID disruption but there’s light at the end of the economic tunnel. It’s time to do more than just ‘talking recovery’ and to begin ‘talking growth’”

Getting up to speed with your clients’ financial health

To have a meaningful impact with your client conversations, it’s important that you know how each business in your portfolio has been faring in recent months. 

Where you’re already offering higher-value services to a client, you’ll have a decent handle on their current status. But with clients that you see less frequently, there’s a need to get under the skin of the business and find out the owner’s specific pain points.

To expand your understanding of each client’s position:

  • Book a meeting or video call – arranging a face-to-face meeting, or a Zoom call could well be the starting point for some deeper advisory discussions. Communication has been different over the pandemic and may be lacking from some clients, so this is a chance to catch-up, hear about their big challenges and see where they’re hoping to take the business.
  • Ask plenty of probing questions – asking the right questions can reveal many hidden truths about the business. You might know their accounts inside out, but you should also know the executive team’s big goals for the business, and cultural things like employee churn. Get to know their ambitions and the hurdles that are holding them back. And whether a lack of working capital or ready cash is stopping them from grasping opportunities, or scaling up at the speed and consistency they want. 
  • Review their current capital position – a deep dive into their accounts and management information can also be revealing. If you’re using a cloud accounting platform, you can quickly drill down into the client’s numbers to check on their financial health. Look at the status of their assets, cash reserves and aged debt to get a good understanding of their capital position. And try to pinpoint any possible weak spots
  • Search for areas of cash flow weakness – look for the areas where cash flow is weak, working capital is under threat and debt is starting to create problems. If you can spot the points where income is faltering, or outgoings are increasing, you’re well on the way to creating an action plan for tackling these cash-related issues. 

Kickstarting their financial performance

Once you’ve analysed the client’s overall financial health, you’re then in a far better position to help with improving their financial performance. And if growth and expansion are on the company’s agenda, a decent cash position is going to be vital.

This is the point at which your remit changes. The ‘compliance hat’ comes off and the ‘proactive advisory hat’ goes on, with your efforts now focused on targeted financial improvement. This adds massive value for your clients, helping them to get a better equilibrium between cash inflows and outflows. And it also reinforces your position as a close, trusted adviser who can bring about real positive change.

  • Go deep with the cash flow forecasting – it may be a truism, but as we all know, cash really is king. As such, cash flow forecasting can be a vital tool for looking down the cash road and predicting the key pinch points. It’s far easier for the FD to mitigate and plan for any cash flow gaps if you can provide robust, detailed forecasting for them. After all, a lot has changed many times over during the past 18 months for the majority of businesses.
  • Explore spend management strategies – the smaller the client’s outgoings, the larger their margins and the more cash will be available for growth. Go forensic with your reviews of their spending and look for opportunities for them to negotiate better prices, agree better credit terms and build stronger relationships with suppliers.
  • Focus on debt management – if cash is tied up in unpaid invoices and bad debt, that’s going to hold back the client’s liquidity. Make sure their credit control processes are streamlined and effective – automate them with a tool like Chaser if possible. And face those bad debts head on by bringing in lawyers and dispute resolution experts.

By focusing your efforts in these three areas, you’ll have a pronounced impact on the client’s overall financial performance and underlying working capital position. And with the company’s finance now fine-tuned and ticking over, you’re ready to look at their additional funding needs.

A funding strategy to drive growth 

Having a proper funding strategy, tied to a long-term growth plan, is central to prolonged stability. Only then can clients build the solid foundations needed to scale up and expand.

Very few businesses are in a position to finance their own growth, without external funding. Growth is almost always expensive to achieve. So, unless there’s significant liquid cash in the business then a new route to funding will be needed. Your role is to help the client produce a funding strategy that gets the job done. And to connect them with the right lenders and/or investors for the job.

The client’s funding strategy should set out their key growth aims, along with clear budgets for each stage in the growth plan. Once you know the costs of expansion, buying new assets or scaling up their operational capabilities then you’ll have a workable number to plan around. 

It’s then about breaking down:

  • How much of this growth funding can be self-financed 
  • How big the funding gap is that will need financing
  • How much the client will be able to borrow, based on their current financial position
  • What the most appropriate financial products and lenders will be

Guiding the client’s choice of funding channel

With the required funding amount nailed down, you can then begin thinking about the most appropriate financial product for the job. Choosing the right product (or mix of products), with the best provider(s) is important – as is agreeing on a contract that benefits the end client.

The choice of product will depend on how much funding is required, the speed at which funding is needed and the client’s ability to borrow against their assets and/or personal guarantees.

Common options in the current finance market include:

  • Invoice finance, where clients can advance the funds owed to them in their outstanding invoices, providing fast and straightforward access to steady cash flow.
  • Flex loans, that provide access to flexible business lending when additional working capital is needed to keep the clients’ plans on track.
  • Recovery Loan Scheme, which provides government-backed funding to aid your clients’ full economic recovery following the pandemic (available until 31 December 2021).
  • ​​Enterprise and innovation grants that allow clients to access specific regional or industry-focused grant funding to drive their growth and innovation.
  • Capital allowances and tax reliefs that help clients to reduce their corporation tax bills and invest back into their business – such as the recent super-deduction scheme
  • Investor funding and private equity, where private money is brought into the clients’ businesses in exchange for shares and a certain amount of control over the business.

The financial products and funding channels that are best suited to your clients’ needs will be different for each business. It could be that a simple flexible business loan would fit the bill. Or it may be that a business needs a mix of invoice finance to solve its cash flow issues, combined with a recovery loan and additional third-party investment.

As your clients’ go-to adviser, it’s your role to help them make these decisions, formulate their funding strategy and manage the ongoing process. Remember, their growth plan and funding strategy will need to be regularly revisited, revised and amended as circumstances change. 

MarketFinance as your go-to business finance provider

By expanding your firm’s advisory offering into funding advice, you greatly increase your ability to help clients recover, grow and scale up their operational capabilities. 

Instead of just offering theoretical advice, you can draw up a meaningful funding strategy and help clients access the funds they need. At MarketFinance, we believe that taking proactive action to keep your clients well-funded is key to their long-term success.

We offer a range of different routes to finance for your clients, as well as a partnership programme for accounting firms. If you believe that it’s time to talk about growth, we’d love to work with you and your clients to finance their ambitious plans for the future.

Why leave it there?

To find out more about MarketFinance and how we support your accounting firm

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