Making the pitch to a lender is the acid test for any business proposal. This is when you find out if your proposition is likely to succeed in the opinion of the people you are asking to fund it.
You only get the chance to take a proposition to a lender once. It is important to remember this. If, for whatever reason you get turned down you cannot take that proposal back to that bank. That is why, at Lily Head Finance we always ask clients to declare if (or not) they have already been turned down by a bank. If they have,we cannot then re package and return to that bank.
When putting your pitch together always follow the 80:20 rule. Identify and comment on people, product and process that represent the greater part of the business activity and financial performance. Keeping the full attention of the audience is paramount. So avoid too many caveats or explanations of activity that is not central to the business. Go through the business plan and your draft presentation carefully to identify all material that is not vital in gaining a full understanding of the business. Move this additional material to the appendices.
You can expect your audience to have a working knowledge of your market sector and industry structure. Do not assume an in-depth knowledge and be prepared to explain your treatments and services in layman’s terms. A glossary can be a useful addition to the written plan.
Explain how you differentiate from your competition. Try and be specific and support any statements with data and examples. Superior customer service is a given for all service businesses and do therefore identify other areas of competitive advantage.
Asking for the Money
When seeking debt or equity funding, be specific about how much is required and how these funds are to be employed. List the key elements, starting with premises and equipment moving on through fixtures & fittings, software etc. Then address the funding required for day to day trading such as purchase of increased materials stock, the funding of credit terms for the NHS or patients if applicable. Consider building in a contingency sum if planning a significant project. If the investment is to be made in stages, set out the timeline and any contingent events or triggers that will have to be reached before the next stage of investment is implemented. If you have received quotations for specific items of expenditure, then include these in the appendices.
Identifying Risks
What key risks does the business face? To return to our horseracing analogy there is rarely a sure-fire bet. There are always risks so try and see the proposal from the lenders perspective. Identify if you can the areas they will want to debate. Start with potential threats to the income line. Consider macro-economic factors that might put pressure on customer spending. Similar treatments or services that might present viable and cheaper alternatives. Aggressive marketing or pricing by existing competitors and the degree to which there are barriers to new market entrants. Keep your analysis simple, logical, and focused on your markets and geography.
Consider the risk of cost escalation starting first with variable costs such as materials, lab expenses and direct performer costs. Addressing the latter, consider the availability of good quality performers in your geography and the relative bargaining power of associates and hygienists. Turn then to fixed costs and focus on the more significant elements. These are premises costs (rent, rates, heat & light etc) and support staff costs. How do your pay-rates look in relation to the local market? Is there a pool of qualified staff available or will you need to invest in training to cover retirements and resignations? Will you need to recruit in the short term from expensive locum staff?
What is the current and projected rates of cost inflation and how exposed is the business to a rise in general overhead costs? Make some calculations on different percentage rises and test the impact on profit levels. How high could fees be increased to compensate for cost rises before impacting on patient numbers or visits? Once you have undertaken a line by line analysis of the profit and loss statement, select those lines which you feel would have a material impact and consider how the risks of cost inflation might be mitigated by changing suppliers or reformulating and reframing their service to reduce the cost of delivery.
Finally, consider the impact on your business plan of a general increase in the cost of funds. Have you factored in any recent rises in Base Rate? Looking forward, what would be the impact on business profitability of, for example, a 1% or 2% rise in rates and how would it impact on suppliers and customers? What price rises might you have to consider to keep pace with that increased cost of capital and what impact would a price rise have on demand?
Management
Identify the key members of the management team and summarise their qualifications, career background and key achievements. Explain their current roles and responsibilities to include any senior staff who make a critical contribution to the success of the business. Expect the lender to be interested in ages, lengths of service, staff turnover rates, contracts, remuneration packages and review process. They will also want to know the relative importance of the business skills base and how easy it is to recruit and train staff to back-fill key roles.
What is your personal financial stake in the business? Lenders like the beneficial owners of a business to have ‘skin in the game’. The business has grown but can you also demonstrate an ability to build value in your personal means statement? How easy would it be for you to increase your investment in the business? Can you make the lender comfortable that they would not be the only stakeholder option if additional funding were required?
Conclusion
We would recommend that a business owner seeks an independent external view of their business plan before making their presentation to a lender. This can represent an important dress rehearsal for the main event. As is often said, first impressions do count. We would encourage the reader to share their plan with all their financial and legal advisers for their input before release. As commercial finance brokers we are working closely with lenders all the time. Therefore we are well placed to offer views on content and presentation.
This article was written by Martin How, the Managing Director of Lily Head Finance . It was first published in the April 2022 edition of The Dentist Magazine.
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