What is a funding strategy and is it necessary for your business?

Blog Funding Strategy

A question asked by many SME businesses is what is a funding strategy, and is it necessary for my business?

A funding strategy is essentially a plan that outlines the financial requirements a business has over approximately a 3-to-5-year period and outlines the plans of where the next lot of financing will come from.

A funding strategy does not guarantee financial sustainability, but it can help navigate through difficult times. During the Covid-19 pandemic and the current cost of living crisis, there has and will be times when business owners may experience high levels of anxiety wondering where the funding for the next few years might come from. With a weakening pound and purse strings being tightened, where will businesses get the financing they need to continue operating? This is where the funding strategy steps in and provides that reassurance and allows the business owners a good night’s sleep.

Key elements to consider when creating a funding strategy are as follows;

Where are you now?

Before starting to look where you want to be, it is important to first look at where you are. Understanding where you sit in the market is key to where you want to be in the long term. Do you have a mission statement and what are your core values? Understanding and having these in place is fundamental to the strategy moving forward.

What are you going to do?

Once you know where you are, it is important you identify the goals which you want to achieve within the business in the short and midterm. Are you going to invest in a new piece of machinery to diversify operations? Are you going to close a particular division of the business, and do you need to consider the costs involved with a closure? This will be the key focus of what you want to achieve in the next few years.

Why are you doing it?

Being aware of why you are going to do things is important, for example you may have noticed a gap in the market which you can easily fill with a little investment. The why element of any project is the cornerstone for the drive to complete it. It may be that closing a particular loss making division will bring future profitability, knowing this will ensure that you are not conflicted by other external factors.

Who are you going to have onboard?

Are you looking at future changes to the management team or to the skilled labour team? Who is going to lead on the funding assignments and are they able to? These are all key questions which will underpin the efficiency and consistency of the funding strategy and the ability to carry out the planned actions.

Consider your location

If you are looking to expand into a new area, ensure you know the impact this will have. For example, expanding into Europe may mean a closer relationship with European banks and finance is needed, and this may impact upon the management team requirements mentioned earlier.

When are your cash needs highest?

It is important to be aware of funding peaks and trough’s. Most businesses (even those that are not terribly seasonal) will have times of the year when they have a greater need for cash within the business. Seasonal businesses will be impacted even worse and will have higher peaks and lower troughs so knowing these areas will be key to ensuring funding arrives at the right point.

As with all assignments before you get going with it always think SMART

  • Specific – ensure that your goals are clearly defined
  • Measurable – reviewing progress on goals is important to track progress and identify issues
  • Achievable – making sure the goals are attainable will mean all stakeholders are invested
  • Relevant – is the project in line with the companies aims and objectives?
  • Timely – are there any constraints which may impact on the project?

Considering these elements throughout the process of developing your funding strategy will assist with ensuring it is a robust document that can be relied upon to meet those funding needs.

If you would like further information or assistance in creating a funding strategy contact one of our team who will be happy to chat.

Posted in Blog, Funding.