Before joining The CFO Centre India in 2014, Rajarshi Datta had accumulated 18 years of finance experience and has a proven track record as a Chief Financial Officer (including at Clear Channel in India). Raj, now CEO of The CFO Centre India, has helped numerous SMEs improve their finance function and fast track their growth. In his time at The CFO Centre, one issue has remained a constant for the entrepreneurs he has met, raising funding. So we asked Raj for his top tips on raising funding:
How can I raise Funding for my business?
Firstly, you need to create a business plan and understand the gaps which are currently in the business. Figure out whether you need additional funds or whether your existing business plan can support your operations. If you feel that your existing operations aren’t generating enough gas and isn’t at a sustainable level, then this is the time to raise funding.
Make a business plan, analyse your business and ask yourself, “Can I wait for equity funding?” If you aren’t able to wait for equity funding, which typically takes time, then look towards debt funding. It will take less time to raise debt funding, however you will need to pay interest, which is an additional burden on your business.
Why should I raise equity finance/equity funding?
In India, the previous generation of entrepreneurs were predominantly starting their businesses because they had the money. Now with modern day businesses, a lot of entrepreneurs are starting their journey with a simple business idea. Typically they are bootstrapped for some time and reach a stage where they can’t continue to grow with their own money. This is a critical junction for an entrepreneur, if they’re not able to raise funding from an outside source then the growth will be stunted.
In order to get that boost, you need to look to an outside source. This is raising funding through equity finance is needed, however equity finance can take time. You need to create a business plan and share a teaser with the different types of investors you pitch to, who will take their own time. This process can typically take 3-12 months.
Why should I raise debt funding/debt finance?
For an entrepreneur, waiting 3-12 months to raise funding through equity finance might not be a viable option. If you’re struggling with cash and need to raise capital quickly, you should look to debt funding. If the entrepreneur’s requirement is low, they won’t go for equity funding. From an investor’s point of view if the amount is too small, it’s not worth their time and money. It’s easier for a business owner to go for debt funding and get the money from the banks or another source.
What are things to consider as a small business or SME before applying for funding?
Consider whether you need to raise funding. A lot of businesses don’t create a proper cash flow analysis and assume that they need to raise funding. Once they make the analysis, they may see they don’t need funding at all. If you feel that there is a need, the first thing to consider is whether you will go for debt funding or equity funding. If it is debt funding, then monitor your revenue generated from your products or services and decide whether for the next few months/years (depending on if it’s short or long term funding) it is big enough to cover an EMI. You don’t want to find yourself in a situation where your revenue isn’t enough to cover your own fixed costs, plus the bank interest and the principle which you need to pay.
Within your role have you come across any examples where raising funding has been crucial in helping a business go to the next level?
The clients we meet with will typically want to raise funding in some way. If we are working with a smaller company, at some stage when they are looking for further growth, they will need funding. This is a regular occurrence for us. CFO Centre India had an instance where a company, whose turnover was around 35 crores, were looking for debt funding. The owner was certain that they wanted to raise funding through unsecured loans. There was no security to be offered and they were not ready to give a personal guarantee, so we set about getting unsecured loans from various sources. In India there is a scheme the government introduced, through which we can get an unsecured loan of 2 crores, but it will not come from one financial institution.
We approached 25 to 30 NBFCs & seasoned banks and raised an overall sum of around 6 crores, which was fully unsecured. Almost every client will need to raise funding through debt finance or equity finance at some stage, as most clients we work with are small companies looking at expanding.
What is the biggest tip that you can provide for a company looking to raise funding?
You need to be sure that you need the funding, you shouldn’t raise funding because other companies are. Once you are sure, you need to figure out whether you want debt funding or equity funding. If its equity funding, then make a solid business plan, which should clearly state the differentiation you’re making in the market. You need to be patient, and when there is a meeting with the investors you should present your story in a way that clearly shows you are passionate about your business.
Find out how we have sourced more than US$7bn in funding for our clients and how we can help you raise funding fast.
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