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Buying a business for MSPs. Chapter 9, Funding, Part B.

The pipeline. You’ll need to build credibility for the pipeline of potential investors over time. Business and social networking, etc. People with money are everywhere, often with people that look as though they don’t have it. From savings, pensions, inheritances, redundancies, winnings, insurances, endowments, etc. It’s not just who you know, it’s who they know. Remember the expression, your network is your net worth. 200 people that know another 200 people is 40,000 people. Always ask if they know someone that might be interested in investing. Ideally, have more than one investor available so that if you need money quickly or one investor pulls out, you’re not isolated.

Don’t offer deals as too good to be true. Non-professional investors are likely expecting very pedestrian rates of return and they will want their money secured in an easy to understand way. Gain credibility. Highlight success of your existing businesses and/or previous deals and get noticed, have testimonials and social proof. Drip feed information to your pipeline via social networks, newsletters and meetups. Advertise occasional deals. Rather than waiting until that one deal arrives, you can announce other deals occasionally, even if you’re not intending to proceed with them and see which people are interested, then offer to keep them on the shortlist for next time.

Some repayment possibilities. Once again, you have the opportunity to be creative in how you repay any capital that you’ve been provided. There’s the flat fee, pay the principal and an interest lump sum after an agreed period. Or repayments, receive the principal and interest on monthly payments for an agreed number of payments. The interest only, so pay interest only and monthly payments for an agreed period with a balloon payment at the end which can be extended or renegotiated. The share of profits and revenue, for example shares of monthly profits, revenues or annual dividends. For a hybrid, monthly payments plus a profit share mix, or payments in kind. Now how about that last one, i.e. providing goods and services paid from the company or suppliers as a preferential rate to the provider of the capital. Security for the lenders. If you have assets in the target business, getting finance against it should be significantly easier. Otherwise, you’ll probably be expected to offer some kind of business guarantee or personal guarantee against other assets that either you own or have control over. Again, being creative, they don’t always have to be your own assets or your own guarantee. Think for a moment about how many parents provide a third-party rent guarantee to help their children get rental accommodation. Here are some other sources of security you or others can leverage against. For business assets, property, stock, plant equipment, vehicles, contracts, purchase orders, accounts receivable, people, football players have often been used as collateral, animals, race sources have been used, licenses, rights and permissions. There are personal assets which include land, property via a second mortgage, cars, boats, investments, savings secured loans, insurance policies, future income. And again, you can be creative, particularly if dealing with individuals rather than banks.

Demonstrate that you mean business. If you are looking to get finance from a bank or other financial institution, you will need to work with them. Remember, ultimately, they want to lend money, even if it doesn’t feel like it. Be prepared to jump through their hoops. Make the loan officer job easier for them. Communicate well and give them access to all the documentation they request. Get them on your side and build relationships and allow plenty of time. As well as credit checking, past performance repayments are a factor. Consider whether, as part of your long-term goals, it’s worth buying something on credit through them for practice and to build up your past performance track record. You can expect that banks and also savvy private investors are likely to want to see a business plan too. as well as your track record and evidence of collateral. Putting together a business plan can help give you clarity as well, so it’s a worthwhile exercise. As this is primarily designed to create confidence in a lender that you will be able to flourish and therefore meet repayments, I have added subsections in key areas, namely opportunities for improvement, which you can complete.

This is the typical business plan. Start with an executive summary. This outlines the business concept, the overview, the current position, and historic achievements. Add in a product service summary. In your financial summary, include an overview of finances and the funding required. Have a vision statement and a mission statement, your marketing opportunity, and objectives and goals. A company description should be a comprehensive, descriptive account of the business and its related factors, including opportunities for improvement. Include a market industry analysis. Under the industry, include innovation and disruption, and pest issues, i.e. political, environmental, societal and technological, and trends. Your market, look at the size, the share, the target market, and the target market needs. And under competition, include barriers to entry and growth, your direct competition, your indirect competition, your competitive advantage, your company positioning, and your USPs. In your product and services, include how the products and services work, how they’re delivered, their life cycle, their costs and margins, product and service development, any research and any training. Under your organisation, include directors, your management team, identify any gaps in how they will be filled, and your production staff, your operating model, and logistics. In your sales and marketing strategy, include your products, pricing, your promotion and place, your communication strategies, distribution channels, customer acquisition, and your sales strategy.

In your revenue model, include income streams, expected income, assets, expenses, liabilities, profits, sensitivity analysis, cash flow projections. Under funding, includes the amounts required and when, i.e. which stages, the breakdown of how funding will be allocated and spent, the exit strategy, the timeline, expected financial outcome, and potential buyers, a profile of general potential buyers, reasons why they would be interested to buy, and a list of specific potential buyers. In your appendix, you want to include your supporting documentation, which will include your income statement, balance sheet, and cashflow statement, any awards, patents, certificates, or key contracts. You want to include contingencies like your SWOT, strengths, weaknesses, opportunities and threats, and alternative strategies for sales and marketing. Include any known issues and how they will be mitigated and your disaster plan summary. A last note about getting finance. If you’re getting it from a bank or other financial institution, expect to wait a few weeks from their receipt of documentation. Furthermore, a share purchase will likely take even longer than just acquiring the assets.

MSP Marketing in bite-sized bits. It’s easier than you think with MKLINK. To get more of MKLINK’s MSP MBA Marketing and IT training resources, make sure that you’ve registered for your account for free now at www..MKLINK.org.