Getting your business ready for finance
In most cases, applying for any form of business finance requires a good amount of preparation.
The general rule is, the healthier a business’s financial fundamentals are, the more likely a lender or investor is to offer funding.
Therefore, making sure you can prove the viability of your business in the long-term is vital to securing funding.
It can be difficult to know what you need to prepare in advance though as different types of finance will require different documents to be prepared or aspects of your business to be checked.
Below we’ve listed the most common things an investor or lender will look at when assessing a request for funding.
A business plan is a vital document that shows the future direction of your business.
It details your business strategy and key objectives, serving as a roadmap from your current position to meeting your business objectives, such as attaining a specific market share, launching a new product, or expanding into new locations.
A business plan encompasses essential elements like market analysis, financial projections, and the organisational structure of your business.
Financial institutions and investors will require a business plan before offering any funding.
Learn how to write a business plan.
Pitch documents
If you’re looking to secure equity investment into your business then you’ll also need to prepare your pitch deck.
A pitch deck is the visual component of your presentation to potential investors, crafted to support and highlight your value proposition.
Think of it as the "shop front" of your business, designed to attract and generate interest.
Regardless of whether you’re approaching your first angel investor or looking for series C funding from corporate investors, your pitch deck should typically address the following key topics:
- your product or service
- the unique selling point of your product or service
- the market and where you are positioning your business versus the competition
- your team
- the financial request (including detailed plans for how you’ll use the investment)
- your exit strategy
Your pitch deck should be supported by evidence and insights, demonstrating your expertise and positioning your business as a credible investment opportunity to inspire investor confidence.
Read our guide on how to prepare a pitch deck for your business.
Cash flow forecasts
One of the key indicators any lender or investor will look at when deciding if they can offer your business a loan is its cash flow.
Cash flow measures the amount of money entering and leaving your business over a specific period.
Positive cash flow occurs when more cash enters the business than exits, while negative cash flow indicates the opposite.
Prolonged periods of negative cash flow can make it difficult to pay bills and cover other expenses, as it directly impacts the available working capital needed for daily operations.
It’s a good idea to develop and maintain a cash flow forecast to help you anticipate any potential squeezes on the finances of your business through seasonality or disruptions.
This document can also then be used to reassure potential lenders that the risk of you failing to meet any loan repayments is minimised.
You can learn more about the types of finance that can support the cash flow of your business by reading the cash flow section of this guide.
Your business credit rating
In nearly all cases, a lender will run a credit check on your business (or you personally if you are a sole trader or partnership) before agreeing to offer you a financial product and under what terms.
A business credit score assesses a company's creditworthiness by evaluating various factors to determine its financial position and level of financial risk.
Business credit scores range from 0 to 100, where a score of 0 indicates high risk and a score of 100 indicates low risk.
A higher score signifies a stronger business credit rating.
To enhance your business's credit score, you should strive to achieve a score as close to 100 as possible.
Learn more about how to manage your business credit rating.
Your business financials
When investors and lenders look at your cash flow forecast and your business credit rating, they’re looking to determine the profitability of your business and its overall financial health.
Those documents aren’t the only things they can look at though.
Your profit margin for each of your products or services is a key indicator and should be constantly monitored.
Profitability is, simply put, your income streams (revenue/sales) minus your costs and is a strong indicator of the long-term viability of your business.
Keeping a close eye on your profit margin allows you to make quick decisions to support the growth and resilience of your business.
It also gives you the chance to demonstrate to potential investors and lenders the journey your business is on and your ability to pivot to make the most of new business opportunities.
It’s also a good idea to maintain a balance sheet which lists all your assets against your liabilities.
A balance sheet will project these assets and liabilities forward, often in the form of 18-month, 3 year, and 5 year forecasts.
Remember that lenders and investors often pay more attention to current financials than forecasts so it’s a good idea to ensure you can provide them with up-to-date information when they ask for it.
Learn more about managing the finances of your small business.
Build your network
Having a support network when you’re starting or running a business is invaluable.
Networking allows you to connect with other new business owners who are on a similar journey.
It's an opportunity to learn from fellow entrepreneurs and experts by hearing about their experiences, particularly when it comes to exploring various business finance options.
Additionally, networking provides a way to meet mentors, potential clients, and new friends.
Learn more about how to network.
British Business Bank plc is a development bank wholly owned by HM Government. British Business Bank plc and its subsidiaries are not banking institutions and do not operate as such. They are not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). A complete legal structure chart for the group can be found at british-business-bank.co.uk.
Whilst we make reasonable efforts to keep the information in this guide up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.
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Around 80% of annual UK business closures are due to cashflow difficulties – that’s around 50,000 businesses per year.
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