If you were in business in the 80s or 90s and opened an account at a high street bank it almost certainly came with a couple of add-ons – a relationship manager and an overdraft.
Back then there were about 30,000 business bank managers and virtually every business that needed working capital had an overdraft facility.
Fast forward to today and the number of bank managers has fallen to just 7,500 and only larger businesses (those with a turnover of over £10m) have one; as a small business your contact with your bank will, at best, be with a call centre. Any knowledge and understanding of your business – never mind advice – will be non-existent.
As for business overdrafts these are now as rare as hens’ teeth. As one (anonymous) bank manager said recently ‘Giving an overdraft to a small business is like giving a child a loaded gun.’
This dramatic change in the way small businesses are funded, and by whom, has taken place in a matter of a few years since the global financial crash. But it has also seen the rise of a plethora of lenders, many of them specialists in particular sectors and with niche products. These now total in the hundreds with more being added on a regular basis.
This, of course, leaves entrepreneurial business owners with a quandary: how can they possibly source the most appropriate finance for their business at a competitive price if there are literally hundreds of suppliers to sift through and no bank manager to turn to for advice?
The solution that has emerged is both innovative and ‘old school’. As the number of funding suppliers grew, a new type of business evolved that uses the internet and search engine algorithms to identify the appropriate finance for a specific business’s needs from the vast array of suppliers and types of finance on offer.
However, these vast databases still required data in the form of business plans, budgets and cash flow forecasts to operate and run their searches. So these new businesses turned to the one group of professionals who knew their small business clients best – their accountants.
These businesses now promote themselves to, and partner with, accountants to deliver their funding solutions to the small business market. Although many, but not all, will accept applications for finance directly from businesses, most prefer an accountant led application largely because the application is more likely to be successful because of the greater quality of the data, and the business is less likely to default on the loan.
This has led the CEO of the biggest of this new breed of companies to declare that ‘Accountants are the new bank managers to their business clients’.
The success of these data-driven funding applications has been fuelled by a new breed of cash flow forecasting software which links directly to cloud accounting programmes such as Xero, Quickbooks and FreeAgent. These forecasting apps allow forecasts to be created, and data to be updated, from a business’s cloud accounting platform thus improving the reliability of the forecasts and expediting the due diligence process for lenders.
So next time you are thinking of raising finance to develop a new product, make an acquisition of just raise working capital talk to your accountant or one who partners with these new businesses.
At Guilford Accounting we partner with Capitalise and Funding Options to help small businesses raise the finance they need to grow. For an informal, no obligation, chat about your funding needs email me firstname.lastname@example.org.