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Need Growth Funding? Here’s How To Get It

Scaling a business takes money. You can self-fund or you can tap into the resources on offer. Here’s what you need to know to access funding.

Nadia Rawjee

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Most entrepreneurs envision their business growing and providing them with enhanced returns. Some take a traditional view of growth while others plan and build their business for scale.

The traditional purpose of increasing financial returns in a business is to grow. Growth is defined as adding resources at the same rate as adding revenue, while scaling allows a business to grow its revenue and profits through a system that requires less resources, time to grow and overheads in achieving the desired financial returns.

You’ll need funding to scale

Most entrepreneurs with whom we have consulted have failed to take into account the investment or financial requirement for scaling their businesses, as well as the requirements of the partners/stakeholders, such as franchisees they plan to bring on board. To successfully implement a scale strategy, an entrepreneur must plan these financial requirements carefully.

A core strategy to grow revenue is through market expansion or penetration. Scaling uses the same fundamentals, but is focused on sharing resources through collaboration and leveraging partnerships.

Related: Funding And Resources For Young SA Entrepreneurs

Whilst leveraging existing platforms or distribution channels allows for a faster route to scale and market, a business may want greater control over its distribution channel. This could be in the form of franchising the existing business and identifying franchisees or developing an agency/distributor model.

For these to be scale strategies, the business must understand and identify solutions for financing its financial models and requirements, as well as those of its franchisees, agents and distributors.

Develop a scaling business checklist

how-to-scale-a-business

  • Replicable proceduralised business model
  • Track record showing profitability and, in the case of franchising, that there are multiple sites
  • Marketing strategy to attract the right franchisees/agents/distributors
  • Human resource capacity for rollout
  • Technology requirements for scaling
  • Legal framework and agreements to be entered into
  • Financial backing for the above.

Financing solutions for the scaling business

Reinvesting profits. We all do this as business owners, but rarely with a structured plan that will allow us to leverage the investment towards accessing additional finance. Whether considering traditional commercial finance or developmental finance, a business must demonstrate its own investment in the expansion or scaling project, in addition to a good business plan.

For all commercial banks, and even some developmental banks, surety is needed, so build this up as well. The Small Enterprise Finance Agency (SEFA) may lend money without surety, but the process is a bit longer and more intense.

The Industrial Development Corporation (IDC) may consider taking a small share in your business if the risk is high, which may be the case with a scaling project at its infancy.

For entrepreneurs without their own capital and/or surety, finding the right partner(s) to support the requirements of funders may be necessary.

Related: DTI Funding Guide

Franchisee/Agent/Distributor Checklist

The biggest challenge will be to find the right jockey for your brand:

  • Do they have the necessary industry/product knowledge and network?
  • Are they going to be fully operational or dedicate resources to the agency?
  • Do they have the financial resource to commit?
  • Market and location — identifying suitable and viable markets to penetrate
  • Financial backing to establish and grow the business.

Financing solutions for franchisees, agents or distributors

SEFA is a subsidiary of the IDC with a mandate to fund small businesses. SEFA has a wholesale loan which can be allocated to a pool of these partners.

For example, Chicken Stop is a Quick Service Restaurant offering flamed-grilled chicken with local delicacies, such as pap, gravy and beetroot salad, and its uniquely flavoured Smokey Chicken.

The average franchise set-up cost is about R1,5 million. SEFA (through its wholesale loan) has partnered with Chicken Stop to provide business development loans to qualifying candidates who can receive up to R1,5 million debt financing with a personal investment of R300 000 to R500 000, allowing Chicken Stop to scale its network with up to 30 additional stores.

Related: New Ways SMEs Can Find Funding

Businesses that accept card payments with a point of sale (POS) device can raise growth finance from service providers such as Merchant Capital, which allow businesses that have been trading for at least six months and have more than R30 000/month in card transactions to obtain a cash advance on future card sales with future repayment linked to trading activity.

At the end of the day, scale is a more profitable and less resource intensive strategy to grow your businesses in the long run, but it requires good governance, compliance and planning.

Nadia Rawjee has experience in industries ranging from FMCG to manufacturing and mining because of family interest and her involvement in an influential African network called Intra Business Network. Her skills lie in business analysis, business modelling and accessing developmental funding. She has a BCom degree in Finance and a BCom degree in Economics & Econometrics from the University of Johannesburg. For queries visit Business Funding South Africa.

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SAB Transforms Supply Chains

Supplier Development Programmes grow black-owned suppliers and create jobs.

South African Breweries (SAB)

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The South African Breweries (SAB) has invested more than R200 million into creating an inclusive supply chain that incorporates black-owned and black women-owned SMEs through its supplier development programmes, SAB Accelerator and SAB Thrive. In addition, more than 100 jobs have been created through these efforts.

SAB Accelerator and SAB Thrive aim to create a diversified and inclusive supply chain by supporting the growth of black-owned suppliers through business development support and funding. The programmes are two of four entrepreneurship development programmes run by SAB to help create 10 000 jobs in South Africa by 2022 — SAB KickStart, SAB Foundation, SAB Accelerator and SAB Thrive.

SAB’s agriculture programmes also contribute towards the aim to create jobs by growing emerging farmers.     

Related: SAB-Commissioned Research Shows SA Poised To Reap Entrepreneurship Rewards

“From rural entrepreneurs to big business, SAB has laid the foundation to support entrepreneurs and to contribute towards government’s efforts to grow the economy and reduce unemployment in the country,” says Ricardo Tadeu, Zone President, SAB and AB InBev Africa.

“We recognise that one of the major hurdles for SMEs in South Africa is the ability to gain entry into big business and form part of their supply chains. This requires a symbiotic relationship with big business working alongside smaller suppliers.”

SAB Accelerator and SAB Thrive cohesively solve the challenges of creating a healthy pipeline of suppliers that represent the demographics of the country. SAB Accelerator has piloted ten businesses that have created 29 permanent and 79 part-time jobs in a period of just six months, and is currently incubating 24 businesses as part of the official post-pilot intake. SAB Thrive has invested R100 million in seven businesses, which have created 46 new jobs. In addition, the programme has contributed R140 million in new B-BBEE preferential spend.

The SAB Accelerator is an in-house programme dedicated to developing black-owned and black women-owned suppliers. Geared towards fast-tracking participants’ growth, the programme employs ten highly experienced business coaches and ten engineers, offering both tailored business and deep technical coaching to the participants.

It has a three-phased approach consisting of:

  1. Diagnostic: Screening the business’s current situation and systematically identifying gaps and opportunities for growth.
  2. Catalyst: Proposing an intensive three-month coaching intervention addressing key business functional and technical areas of improvement or growth.
  3. Amplify: Providing additional business development to support graduates of the Catalyst Programme.

The SAB Accelerator strongly focuses on enhancing market visibility and access of its participants.

Eligibility criteria:

  • Existing black-owned or black woman-owned suppliers currently servicing SAB’s supply chain at the time of application.
  • Existing black-owned or black women-owned businesses that have potential to join the SAB supply chain based on their product or service.

The SAB Thrive fund is an enterprise and supplier development (E&SD) fund set up to transform the company’s supplier base. The fund was established in partnership with the Awethu Project, a black private equity fund manager and SME investment company. The aim is to invest in and transform SAB suppliers to represent our country’s demographics. SAB Thrive investees benefit from 100% black equity capital and business support.

Related: 6 SAB Entreprenurship Programmes That Provide Business Management And Support

The fund invests growth equity capital into SAB’s existing high-growth black-owned suppliers, furthering their profitable expansion into the SAB supply chain without diluting the black-ownership of these businesses.

Existing white-owned suppliers are provided equity capital to support the enhancement of their black ownership, while facilitating the introduction of black entrepreneurs to their business. The intention is to apprentice the individual to take over the business in the near future.

Eligibility criteria:

  • Black-owned suppliers in the SAB supply chain that want to grow their business through access to black-owned growth equity capital.
  • Existing white-owned suppliers in the SAB supply chain that want to transform their B-BBEE ownership.

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Alternative Finance – Filling The Gap

Alternative Finance is finance beyond the traditional – it is defined by the financiers’ area of specialisation – by what they specialise in, whom they serve, and how they provide their funding.

Spartan

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Alternative Finance is finance beyond the traditional – it is defined by the financiers’ area of specialisation – by what they specialise in, whom they serve, and how they provide their funding. It does not replace traditional finance but rather functions as a complementary and additional form of funding.

Alternative financers are specialists – they focus on a particular need and on a specific audience. As a result their ‘how’ is customised to deal with their chosen target market and for this targets unique needs. This applies to the funder’s processes and to their level of flexibility around things such as collateral. An example of this is that a SME may have an existing R1 million overdraft (their traditional finance) secured by R 1.5 million collateral but suddenly they need R5 million for some kind of contract or bridging finance – they need it fast and don’t have that extent of collateral.

The traditional funder cannot provide what they need, their process is too long and their flexibility is too low. An alternative financier providing bridging finance and specialising in SMEs is ideally positioned to fill this gap.

Related: 5 Key Questions To Answer For Raising Funding

One of the most significant differences between a traditional funder and an alternative financier is in their process. In the case of the alternative financier, they have often chosen to deal exclusively with a particular customer base, for example SMEs. As a result, this funder has both an affinity and contextually relevant empathy in working with SMEs.

Not only do they speak the same language the funder also has an appreciation for the time and material constraints of the SME and has developed their processes to cater to this market. This applies most notably to the turnaround time of the funding need and to the assessment aspect – where flexibility around things such as collateral is vital in making the finance happen for the SME.

A traditional funder is unable to meet the deadline of a bridging finance need, submitted on an urgent basis, where the finance is needed as soon as 2-3 days from time of application. A specialised or alternative funder is able to do exactly this. A traditional funder is also unable to find creative methods in solving the SMEs lack of high-value collateral in applying for finance.

This SME has generally already used their high-value collateral for traditional credit facilities but now needs funding for growth or resolution of a temporary cash flow challenge. An alternative financier is able to look at such an application in a different way, and has most likely already established alternative ways to make this happen for the SME.

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6 Money Management Tips For First-Time Entrepreneurs

That R25 coffee every morning isn’t taking you to the next level any faster than brewing a pot at the office.

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How many times have you been told that saving money is a good thing? Financial specialists recommend that you save a bit of money every month, but that’s easier said than done. After all, it’s not uncommon for people to live paycheck to pay cheque.

However, if you want to start a company, you’ll need to break away from this cycle and start budgeting and saving. At times, this will be a trying task, but it must be done if you want to invest in your future as an entrepreneur.

If you want to start managing your money more effectively and set yourself up to become an entrepreneur, follow the six tips below. With these techniques in your arsenal, you’ll start so see immediate changes, and you’ll set good behaviours in motion that’ll serve you throughout your career as an entrepreneur.

1. Prioritise organisation

When you are organised, you can track every facet of your finances. Record all of your financial information in one place so you can refer to it and keep track of your progress.

When you chronicle all of your financial information, you may want to try and organise it by category. For example, when you are recording your current costs, you can categorise them as “urgent” and “future.”

Not only will this system help you stay on top of your personal finances, but it’ll prepare you for entrepreneurial success because it’s a directly transferable skill.

Related: Smart Money For Small Businesses

2. Check your credit

According to a recent MoneyTips survey, nearly 30 percent of people don’t know their credit score. If you are among this group, it’s time to request a free credit report. Once you know your number, assuming money’s tight, feel free to use a few do-it-yourself credit repair techniques to quickly improve your score.

Understanding your credit score and improving it to the best of your ability is paramount when it comes to money management. A little-known fact among aspiring entrepreneurs is that the funding a new business receives is often dependent on the founder’s credit score.

3. Save where you can

People often cringe when they think about cutting back. Fortunately, there are several painless ways to save. Look at your daily habits and see if you have any spending trends. For example, if you spend $5 every day on lattes, you might consider cutting back and only having the expensive latte every other day. Slowly, you’ll get used to this new habit, and your bank account will reap the rewards.

Related: Time Is Money: Tips To Help You Use Yours Well

4. Search for additional information

The Penny Hoarder

Have you heard of The Penny Hoarder or Dough Roller? These are just two personal finance blogs that can help you better manage your money, but there’s a whole lot more out there.

Subscribe to websites and follow podcasts that offer advice on money management. Also, keep your eyes peeled for informative outlets that speak directly about entrepreneurial finances and follow them, too.

5. Set long- and short-term goals

Have you ever noticed that people want to reach their goals in as little time as possible? If you pick up almost any given health magazine, it’ll claim that it can help you achieve extreme results in little to no time.

Unfortunately, crash diets are often ineffective, and “get rich quick” money management techniques often lack substance.

It’s hard to accept that your goals will take time to accomplish, which is why you create short- and long-term goals. In either case, aim to make goals that are specific, measurable, attainable, relevant and time-based. Ideally, accomplishing your short-term goals will give you the positive feedback that you need to continue striving for your long-term goals.

Related: If You’re Trying To Raise Money, Doing Any Of These 9 Things May Scare Off Investors

6. Find a mentor

If you manage your personal finances and entrepreneurial finances, one thing is certain – at times, it will feel like you can’t keep up with everything. Financial planning can be difficult, and it’s not uncommon for it to feel overwhelming.

As an individual, you can seek out mentors that can help you with personal finances. As an entrepreneur, you can continue to work with these people or seek out more established financial consultants that provide you with guidance you need to run your business.

Managing your finances is a trying and rewarding experience. It will feel messy at times, but the more you practice, the more you’ll improve your personal finances and set yourself up for entrepreneurial money management success.

This article was originally posted here on Entrepreneur.com.

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