What the economic climate means for entrepreneurs seeking investment

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Last year, Small and medium-sized enterprises (SMEs) faced a whole host of challenges in what was a turbulent year for the economy. The issues stemmed from uncertainty brought on by the US presidential elections and, of course, Brexit.

The Business Show will look at the after-effects brought on by the events of 2016 and offer advice on investment - register for your complimentary tickets here.

2017’s current state...

The uncertainty surrounding the outcome of Brexit’s trade negotiations remains a concern that will continue to cause a hindrance.

It is hoped that 2017 will bring new opportunities for SMEs, with the government introducing a number of measures including the credit data sharing scheme and the Treasury’s bank referral scheme. Both policies are designed to provide support for businesses looking to receive finance.

However, new research showed that one in five larger SMEs (100-249) have said they will not borrow money until the final outcome of the referendum is clear. This ambiguity has led to one in seven small business owners stating that they will not be able to get finance from their preferred lender.

What finance options have I got now?

This lingering doubt has led many SMEs to seek financial advice with larger SMEs even exploring alternative finance options to try and grow in a post-referendum Britain. Here is a quick look at some of the most highly-regarded alternatives right now:

  1. Online lending - The speedier younger brother of traditional business loans offers a simple and quick method of application that is forecast to eventually dethrone the traditional business loan approach
  2. Crowdfunding - Its recent upturn in popularity is not surprising, especially given the success stories that have come from its implementation. The act allows businesses to compile various small investments from a number of investors and can create additional marketing benefits
  3. Angel investors - This option has helped many prominent companies such as Google and Costco. The concept is based on angel investors investing their expertise and money in early-stage companies for a cut of their returns
  4. Peer-to-peer lending - Similar to a standard business loans but slightly different, a P2P lending company will facilitate the loan and collect the money you are borrowing from a collection of investors
  5. Advancing invoices - This process focuses on closing the pay gap, so businesses can begin new projects at a quicker rate. Your chosen service provider will pay you the money of your billed out invoices, allowing you to receive the money straight away before paying it back once the invoice is settled

Among the obvious challenges surrounding the world of investing in SMEs, one that will persist in 2017 is the valuation of a growth-stage company. The appetite of investors is still strong. A new report by Lyceum Capital and Cass Business School said that despite growing concerns over the ambivalent political situations “SMEs continued to attract high levels of private equity investment throughout 2016 as investor confidence held firm despite a year of political turbulence”.

With the interest being seemingly unscathed, let’s look at valuation and how entrepreneurs can start to think about raising funding.

What to consider when valuing your business

Here are four useful points to think about when you’re in the planning stages.

  1. Develop and demonstrate your concept - Investors are going to be aware of your target market but will not know the true extent of what your company can offer. Remember, the more innovative the concept, the more potential your company will have to possess a market advantage - resulting in an increased valuation of your company
  2. Determine and defend your valuation - You can create a financial forecast for potential growth that takes into account the potential size of the market, the funds you have to invest in growth, and the proven cost of customer acquisition and cost of sale to date
  3. Get creative - Ambitious entrepreneurs must strive to use their creative side to present their business in a way that is unique to the ocean of competitors
  4. Showcase your exit value - You MUST be able to make a strong case for just why your company has the potential for a high exit value. Remove the doubt in the investor's mind by compiling everything you have achieved to date while explaining what improvements can be made with their funding

Ultimately, the biggest question facing many SMEs this year is whether to embark on the journey of trying to raise investment, so the business can begin to grow at a faster pace, or simply take stock and focus on optimising the resources that are currently available through organic growth.

Tailored advice that covers the different stages of growth for businesses, along with funding options, will be available at The Business Show, which is taking place at the ExCeL on 17 and 18 May. Register for your complimentary ticket to the Business Show today.

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