Getting investment to grow: Are you ready?

Your social enterprise is doing well, you're ready to scale up and for that you need a cash injection. Think you're ready for the scrutiny of potential investors? Think again, Chris Hardy tells us.

Your social enterprise has survived the first couple of years and things are going well. The business is a going concern, you’ve got a small team who have lived up to your expectations and you’ve got more work than you know what to do with.

In order to deal with demand, you need more hands on deck. And for those extra hands, you’re going to need a bigger office space and more computers, desks and possibly other equipment too. You’re ready to grow and for that, you’ll need an injection of cash. In your eyes your investment case looks pretty convincing but are you really ‘investment ready’?

According to Chris Hardy, a business adviser who specialises in finance at Inspire2Enterprise, you won’t attract money unless you’re prepared to put in some hard graft. “I think people expect finance to come much quicker than it does. It takes a lot longer to secure finance, and have it in the bank, as lenders have to do their due diligence and that takes time. To be able to run the small business at the same time as finance the future and grow it can be demanding on the MD or the owner of the business.”

So what do you need to be investment ready? A good start is having a business plan. That will provide some information but expect potential investors to ask for more, which could prove a drain on management time. Hardy says that a seemingly mature business doesn’t necessarily mean that they’re any better prepared. He recently worked with a social enterprise that had been operating for a number of years that presented an incomplete business plan.

“It was an education to them to understand what investment readiness was. In their case it meant really looking at their financial plan and going into depth about what their strategy was, whether it made the required returns necessary, an analysis of the people managing the business and considering their history.”

Investors may additionally ask for a kind of audit of the business, by looking at forecasts of sales, assessing if costing and pricing is right and to ascertain if there is a decent marketing plan. Hardy also says that many social enterprises don’t have a proper measurement of their impact and that is equally important, as it can be one of the main attractions for potential investors.

Once a business has considered all of these aspects, they should know what kind of investment they are readying themselves for. Given the tight margins involved with social enterprises, Hardy finds that: “Generally they are looking for the cheapest option, which means grants, because they don’t necessarily want to commit to loans which may be secured and which need to be repaid. That’s often where the conversation starts but it generally turns into a mix of grant and loan investment.”

You are no longer in the start up phase and you have to be more professional in your approach...

His advice is often to consider sources close to home initially. “First of all we’ll look at the community around them, their friends and family, to see if they are looking to get any personal investment. One of the failings of early stage businesses is that they are not willing to take the risk themselves and yet they will expect an investor to take that risk.”

As challenging as finding the investment can be, a bigger challenge may be the subsequent growth that entails from the added investment. “Many enterprises will start off quite small; the owner is in control and suddenly the enterprise needs to think about broadening its skills and leadership and managing its growth effectively. Therefore a review of the governance is needed. For existing employees and management, change can be extremely stressful. There’s a cultural change in the organisation; you are no longer in the start up phase and you have to be more professional in your approach to get to the next stage.”

Despite all the hard work involved in seeking investment and the change that this necessitates, Hardy believes that all the effort involved is really worthwhile. "The reward of investment will enable the enterprise to ultimately meet its primary social purpose, the reason why they came into existence in the first place. Fundamentally the enterprise needs to be sustainable. The end game is being able to deliver its social programme and that is a very important driver. The reward from the investment generally comes later.”



Photo credit: Oscar Rethwill

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Inspire2Enterprise provides a unique, free-to-access social enterprise support, information and advice service – from start-up through to initial growth and beyond. Call them on 0844 9800 760 or click here to find out more.