Wed 24 / 04 / 19
The Fundamentals of Finance: “It’s not Scary!”
By Richard Howard
Brighton Chamber recently held a panel discussion on the real fundamentals of finance as part of our High Growth event series.
The event, hosted by co-sponsor Brighton Eagle Lab, brought together business people and leaders from Brighton, Sussex and London who were keen to hear about the oftentimes anxiety inducing, but nevertheless important topic of business finance.
The discussion, facilitated by Si Conroy, CEO of Scarlet Monday, opened with our four panellists introducing themselves by sharing their best and worst experience navigating the world of business finance.
Seb Royle, Founder of PLATF9RM, told us his best and worst finance story was opening PLATF9RM Hove which cost the business a fortune (and a certain amount of stress), but two years on, is a risk that absolutely paid off.
Hannah Dawson, Founder & CEO at Futrli, shared her recent top finance story of Futrli raising £4 million over the past year, which has now set them on an even stronger growth trajectory.
David Biggs, CFO of Farewill, a leading company in the ‘Death Tech’ market (an introduction followed by curiosity and some nervous laughter), shared a story about a previous company where everyone in the team pitched in to save it from going under.
Jonathan Grant, Partner at DMH Stallard, told us his best finance story is where they are now - since the 2007 recession they have changed a lot but have continued to grow.
Si then asked our panellists about one of the biggest topics for smaller business: Investment; when, how, what and why?
Jonathan: You should borrow at key stages, for example when you’re attempting to break into a new market. Don’t borrow for something to make you feel good, such as an impressive office. If you do need to raise money, then think very carefully about the different sources of finance. Bank borrowing tends to be cheaper, but they want security from it and will be looking over your shoulder. With investors and shareholders in the business, make sure you know them well.
Following on from Jonathan’s ‘borrow at key stages’ mantra, Seb Royle shared how he borrowed a couple of million pounds to launch PLATF9RM…
Seb: The fundamentals of it for me is I had to have capital because I was building infrastructure, and my goal was to build at a high level.
Another topic that came up as a financial fundamental was having a base understanding of your own finances.
Hannah: Accountancies are going through a transitional phase now and often they don’t have the bandwidth to fully service all their clients. Therefore, you need to have a base understanding of your own finances. It’s important as a small business to feel safe and secure about your numbers. You’re not going to break anything, it’s not a terrifying place to be. You need to start feeling secure about your own business. As people start leveraging the power of AI, businesses will gain insight they didn’t even know was there… Fundamentally, try not to feel scared!
For Seb, hiring a financial department was pivotal in helping him to make sense of his finances.
Seb: I couldn’t have sat here [on a finance panel] three years ago because I didn’t know much about finance. I do now after becoming a founder. I couldn’t have done it without my Finance Director. Six months in I was struggling with my numbers and a virtual FD provided important information to keep me on track, such as cash flow and forecasting. I now have that information to hand; I know exactly what my profit is and what my cash position looks like - that’s how I keep running the business. If I didn’t have that I’d be sleeping much less than I sleep now, and I sleep beautifully.”
The panel also agreed that ensuring all your team members embrace and understand the financing of your business is key, and the best way to do this is by being transparent.
David: Whether you’re making profit, you need to know what’s happening with numbers. Looking forward is a great thing to do and tools help well with this, but you need to motivate your team by selling a vision and dream - this comes with transparency.
Adding on to this, David noted that the relationship with the sales and finance teams is pivotal to your business.
David: What finance people add to business is processes. When you sit down with a sales team and analyse how long it takes to make the process happen, finance can dig out more of the detail. Even when you’re doing tasks like integrating a CRM, you should include your finance teams because they know what data will be the most useful to have on hand.
Hannah: Having transparency throughout is hugely important - you cannot wear every hat for your business, or you will break. Start leveraging your team. So, whether it’s the marketing department understanding the impact they’re having on the bottom line, or helping the sales function understand their pipeline - give them visibility. Be transparent about it and show them ‘when you do this, that’s going to happen’. A team would only take a salary cut or pitch in to save your business if you share things with them, like in David’s experience.
Si’s next question revolved around selling your business; he asked the speakers ‘what drives valuation?’
Jonathan: It varies. If you have a business with a massive scalability and a profitable product, that can drive a lot of value. But this isn’t typical. People will pay you based on their ability to earn a certain amount from your business over the next few years. That multiple varies depending on what sort of business it is. In nearly every deal the valuation is based on whether there is no debt in the business. If there is surplus cash, you get to keep it because they’re paying for the ability to make money from the business in the future. Showing that your business is profitable and growing is what will attract buyers. If you’re lucky and have a business with a global spread, then you are set. People won’t pay if they find out they can do the same thing. They’re buying you because you can do something for them much quicker than they could.”
Following on from the talk, the floor was open for guests to ask our finance and business experts questions.
One question from the audience was on the topic of investment, asking the speakers for tips for someone on the start of their investment journey – “where do you begin?”
David: I would start with what you’re doing and how much money you need. Think about the sort of business you’re building, where you want it to be in a few years’ time, the size of that business and finally think about how much you need to achieve your business – that will decide the type of investment you need. It is a lot about future gazing, the only way you’re going to get there is visualising what your business will look like.
Q: Cathy Caton from Brighton Gin asked, “What advice would you give to a manufacturing business that’s in a booming sector to scale in Brighton?”
Jonathan: Some of the business I’ve seen grow quite cleverly used partnerships and ventures of different types to help them scale. Working out ways you can try to work with other people is a good way to develop and further market your product.
Hannah: Perhaps leveraging the influencer network is a way to go. It’s a new way of looking things, you are a cool brand so why wouldn’t you leverage that left-field approach.
The night was followed by some further networking which gave guests a chance to chat with speakers. Undoubtedly, people were left with a better understanding of the complexities of finance, but also the reassurance that there is no one clear path/strategy. To reiterate Hannah’s point, “You’re not going to break anything, it’s not a terrifying place to be.”
To find out more about our future events, take a look at our calendar here.
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