Growing away from the family bank
Starting your own business isn’t easy. It’s one thing to come up with a business plan but then you need to find funding to get started and, in time, to grow. Many of the growing businesses that we work with belong to creative industries; marketing and advertising agencies for example. A Creative Industries Council report found recently that businesses like these are almost twice as likely to use external finance for growth than SMEs in general.
One reason for this could be that creative businesses are typically younger and have more growing to do. They also tend to be more ambitious with 75% planning to grow in the next 12 months, compared to 50% of SMEs overall. Interestingly, the CIC report found that creative businesses are three times more likely to rely on funding from family and friends.
So why are businesses like this turning to their inner circle for funding? For some, it’s the feeling that a traditional bank simply won’t understand them. We spoke to a creative agency, for example, about how they came to use invoice finance from MarketInvoice. Having first approached the bank, they felt that there just wasn’t any synergy between their business and the people they were talking to. We also spoke to the founder of an adtech platform who had gone to a bank that specialises in media and advertising. He was surprised to find that they didn’t actually understand the nature of his business and chose to end the relationship after just a few months.
From this respect, there is certainly an upside to raising funds from family and friends. They already know you and your business – it’s likely that they trust in your ability to make it succeed. But when it does succeed, and things really start taking off, funding your business this way can become unsustainable. As your business grows, so do your costs. You might need to hire more staff for example, move to bigger office space or front major contracts from much bigger clients. This can put pressure on your cash flow and create a need for more regular funding.
One of the most common cash flow challenges faced by our customers in creative industries is bridging the gaps opened up by long payment terms. Depending on the client or size of the project, our creative customers can wait up to 60 days to get paid for their work. This creates a shortfall because the type of work they do often involves upfront costs – printing collateral for example or putting together video and digital assets. They may also need to pay freelancers on top of their full-time monthly wage bill as well as normal business overheads.
The good news is that there are a range of funding options available to growing businesses, outside of the family bank. Our invoice finance solutions, for example, enable you to unlock funds tied up in your unpaid invoices. By advancing against them, you can turn these outstanding invoices into cash straight away without having to wait for your clients to pay. It’s a quick and easy way to scale your funding approach and gives you flexible access to funds when you need them.
We’re fortunate to work with businesses of all shapes and sizes across creative industries. What we’ve learnt from getting to know each one of these customers is that there’s no such thing as a one-size-fits-all solution. Creative businesses rely on a deep understanding of their clients to produce work tailored to their individual needs. Our approach to business finance is the same.