The decision to take external financing, whether a bank loan or equity investment, is a big one. If you are able to avoid or at least minimise the sums involved, for example by building a strong contractor book or having better forward planning, then most owners generally find that a preferable option. However, sometimes an injection of capital can be the most effective way to grow the business. Here are my top tips on setting about the process:

Finding financing – bank loans will come with an arrangement fee and interest payments, while private equity and angel investments will typically result in sacrificing equity in the business. Both of these approaches can be valuable sources of finance depending on what you are trying to achieve and the state of your business. However, there are also a range of local and national government schemes that usually offer preferential terms. I will be running a seminar on Wednesday 10th June where growth accelerator schemes will be covered. If you would like details, please get in touch – aarnot@alexarnot.com.

Who to trust – knowing who to partner with to make the most of your business is crucial. Some partners will be relatively passive so long as you are meeting your obligations while others will be more proactive in helping drive the business. The best ways to make sense of your options are to build relationships, share ideas and recommendations with a number of trusted MD/Owners of other recruitment companies, and to seek advice from your own network of contacts. Online relevant business networking groups can be highly informative while a request for recommendations on LinkedIn groups like Recruitment Sector Rising Stars can bring a number of responses quickly.

Preparing for investment – investors will want to see a comprehensive business case for their investment and evidence to back up your projections for future profits. If you are new to securing investment the process can be both time consuming and daunting. Much of the work can be outsourced very cost effectively if you know who to use. More on this in a future blog post.

Assessing your company’s value – your company is not worth what you think it is. It is worth what other people are willing to pay for it. In the same way that if you were selling your house you would get a number of valuations and query discrepancies between them, you should do the same with your business. Value is built using a number of factors however typically it will be calculated on a multiple of average profit over three years (EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization) – however this will depend on the nature of your recruitment business, the sectors it operates in and your financial (and other) records.

Securing favourable terms – Investors will be concerned by two things – risk and return. You need to minimise their risk to maximise your, and their, return. Make sure that you know your business and your sector inside out. And make it as easy as possible for investors to see how well run the business is and how sustainable the growth and profitability are. That means good financial and board records as well as avoiding the business depending on any one or too few individuals.