Time and again small business owners often list access to funding as one of the biggest challenges to entrepreneurship. In an environment where 63% of small businesses fail within the first two years of operating as stated by ABSA at its Small Business Roundtable, what can a small business owner do to ensure that his business can easily access funding and thus surpass the challenging first 5 years?

Passion and research is pivotal. Nikki Viljoen, Managing Member of Viljoen Consulting says that experience has taught her target market testing-to ensure that the product or service being offered is something the market wants, cannot be stressed enough. 

She states that there is often confusion about what it takes to be an entrepreneur, as many feel the need to start “something” and yet have no idea what that something is. “Setting up any business takes a lot of hard work, long hours, abused family time and a lot of dedication…if you are not passionate about what you do, you will grow to hate it,” says Viljoen. She adds that “without the passion and self-belief, you will become a mere statistic”.

When approaching potential funders, a comprehensive and well thought-out business plan cannot be over-emphasised. Marius Le Rouw, Head of Small Enterprises at Standard Bank says, “Standard Bank sees many ‘copy and paste’ business plans that have been put together by consultants which the aspiring business owner cannot clarify. In truth, what the bank wants to see is the entrepreneur’s blueprint for the business”.

A business plan is a detailed overview of the current position of the business, where it wants to go and how it will achieve its goals. What makes the business plan important is that it prompts you to figure out where you want your company to be in the future and how you intend to make this happen. Your plan acts as an outline that guides and steers your business so that it can achieve all its objectives. “This document will also be your calling card when you want to raise finance, find new investors and business partners, as well as obtain credit from suppliers,” says le Rouw.

Le Rouw adds that “entrepreneurs looking for finance often neglect to present detailed financial statements and management accounts”.  Any would-be financier would need these in order to assess the financial health and repayment ability of the business.

According to Standard Bank, small business owners seeking finance would need to produce the following along with their application for finance:

• A personal statement of assets and liabilities for all partners, members and directors
• Cash flow forecast
• Projected income and expenditure
• Amount and source of the business owner's contribution or stake in the business
• How the business will use the finance, for example: capital expenditure or working capital
• Sales and purchases budgets
• A business plan that offers details such as the nature of business, product offering, market environment and management skills (below is some of the information required):
• Business details
• Business description and overview
• Business operations
• Business environment (sales and customers, debtors, suppliers and creditors, production and competitors)
• Financial review
• Source and application of funding

In reviewing applications for finance, Standard Bank looks at the following:

• The quality of the business plan. As an entrepreneur you need to clearly demonstrate your business idea, how you want to implement it and the long-term viability thereof. Furthermore, the bank will look at whether you really understand the business and the cash flow likely to be associated with it. This includes the market, differentiation, product or service, costs, margins, etc.
  
  
• The extent of the owner's contribution in the deal. By offering collateral, you increase your chances of securing finance as it is a form of security for the financial institution and it shows commitment and willingness by you, the business owner, to share the risk.
  
  
• Most banks will consider re-investment of profits into the business. Not only does this demonstrate the commitment of the owners/shareholders to the business, but it also strengthens the financial position of the business and improves the likelihood of success.
  
  
• The profile of the entrepreneur is important. Do you have the management skill to manage, run and grow the business? Do you have the technical ability? Demonstrate your skills by describing and including them in your business plan.
  
  
• Repayment ability. This needs to be evident as the bank does not want to finance a project which cannot be repaid as this could lead to the ultimate failure of the business.
  
  
• A good banking record goes a long way. Try to maintain good account management and conduct on your business bank account as this will position your business in a good light.

The SME market has the potential to make sustainable contributions to the economy. However, thorough planning and channeling of skills to where they matter the most is crucial.