4 reasons why SME’s don’t get funded

One of the things I do to support Small and Medium Enterprises (SME’s) is to review business plans, in particular for those that have been struggling to get the approval for funding, and I give advice on how to improve their chances of receiving funding. This is all part of a goal for Business In Theory to be part of the success in increasing the sustainability of SME’s.

A few months ago, I had the opportunity to discuss a few key issues with the funding processes in various organizations represented at the Global Entrepreneurship Week/Local Economic Development (LED) Expo – I attended as one of the speakers. A few things were clarified:

1. Entrepreneurs find the process in most organizations to be tedious

A lot of information is required in order to assess a business and its viability for funding. As a youngster, whenever I asked for money, I had to justify why I needed it. My dad asked many questions on what I would be using the money for and if my reasons were not good enough – he would decline my application for funding – you probably do the same with your kids. These organizations need to do the same before they approve the millions requested –anyone that makes an investment wants comfort that it is a wise investment, hence the rigorous risk assessment. Can the application process be easier? Probably.

2. The quality of the business plans being submitted is low

This I can testify to first hand. Most of the business plans fail to clearly define WHAT product or service is and WHY. Insufficient information on WHO the customer is and HOW the product or service is provided. The service to review the business plan is free so I can assist in defining the business and improving the content. Most funding organizations are able to assist with compiling the business plans, though they lack capacity to attend to every request for assistance. It is also clear that we need more training on writing business plans.

3. The is little or no evidence of sustainability in the application

The SWOT analysis requires extensive research and evidence of the approach to managing risk in the business. Bear in mind funding agencies have their own research. Applicants need to provide evidence that the research was thorough, mitigation plans are in place in response to the risks identified and plans for the business to remain operational beyond applying for funding.

4. It is all or nothing for an SME

The risk appetite to award large amounts to an SME that does not have operating history is low – note, I did not say it does not exist. If the financing required is greater than R1 000 000, consider planning the implementation in phases. Understand how business operations can be implemented in phases – quick wins (quick and low cost to implement, but also quick to earn from). Take the return on investment on one phase, use that as evidence of business growth and actions of continuous improvement with the updated SWOT analysis (see point 3) when applying for funding for the next phase.

Your business plan is a document noting an IDEA – what you intend to do.

You then start operating – that is implementing the idea. More importantly, you start learning, in real life, what works and what does not work i.e. not based on versions found in textbooks, webinars, seminars or the internet. Update the business plan based on the lessons learnt – initiate projects to improve business operations and where necessary, apply for funding.

Declining your funding application means you have failed to provide enough evidence of what the business is about, who the customer is and why they need this service or product (i.e. what problem does it solve). It means there is not enough evidence of how the business operations will sustain the business long enough to start earning returns on the investment (ROI), how the business will manage the risk associated with that specific business.

How then can you improve the chances for receiving the funding?  How do you make it easier to benefit from enterprise development programs?

Over and above a well-researched and well-written business plan, documenting the business operations into a business process manual will improve your chances.

Business Process Manuals expose the strengths, weaknesses, opportunities and threats (SWOT) relating to how you operate your business:

1. STOP what is not working – this is also an opportunity to be innovative in finding solutions.
2. START what will improve productivity – based on the strategies to manage weaknesses and threats.
3. CONTINUE what is working well – that is the strength of the business.

Business process manuals are evidence of how the business operates, and if the business is sustainable as this speaks to the value of the business – the processes should be repeatable, scalable and maximized for productivity, making it easier for an investor or funding agency to give you the money you need to grow your business. The same applies to being part of enterprise development programs – it is easier to be part of such programs should you provide evidence that there are efforts to continuously improve business operations.

There are multitudes of benefits to using process manuals such as identifying waste, reducing operating costs, reduce staff turnover and improve productivity.

Something to consider – Say you use business process manuals, and start reducing operating costs. When the business starts to save money (due to reducing operating costs); use that to fund a business project that will either increase the cost saving or increase revenue. Continue this cycle, and where funding is required from an investor or funding agency – there is evidence of continuous improvement and sustainability.

If I go to an investor or funding agency and provide evidence, that I have done everything I can with what I have and what I know to create a great product or service and maximize my reach to customers. Providing evidence that I have done everything I can with what I have and know how to maximize productivity and grow my business makes asking for an extra R1 million or R10 million to take it to the next level harder to decline.

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