If you follow us on LinkedIn, you may have been watching our Tips Tuesday series in which Uzenzele Holdings co-founders Nadia and Zahra share their insights into how SMEs can build a convincing case for prospective financiers.
Most entrepreneurs have gotten to where they are with blood, sweat, and tears, not to mention significant financial costs to themselves.
However, applying for growth funding to bring your business to the next level means asking someone else to absorb at least some of the risk of financing the growth of a small enterprise. This means that prospective funders will be asking for extensive proof that the business is a worthwhile investment — and it’s probably different (or more detailed) data than you think. While entrepreneurship is a glowing testament to personal perseverance and commitment, in the case of applying for growth funding, having a long, detailed, and accurate record of your production capabilities and accomplishments is critical for getting the green light. This article includes some production-related examples we’ve discussed in our online series so that small entities seeking growth funding have some insight into the depth, breadth, and detail of the metrics that funders look for in a successful funding application.
Uzenzele Holdings’ top tips for tracking production metrics
Here are just some of the business insights that prospective funders request for assessment in a funding application. They will vary from industry to industry, but these examples give an idea of the scope of detail and organisational acumen required of successful applicants. If you don’t already have a system in place to track these metrics, it’s a good idea to start now. The more detailed and accurate they are, the stronger the case for funding is.
Cost per unit of production
What material or product is it that your entity produces? What is the unit of measure that your entity uses to quantify that production? Is it square metres, kilograms, or tons? And, finally, what is the cost of producing a single unit of that material or product? Figuring out the cost per unit of production is critical to calculating and understanding the profitability and affordability of your business. This is because the cost of producing one unit helps prospective funders understand the capacity that your business requires to satisfy your clients in granular, calculable terms.
Production shifts
As any business leader knows, the cost of production is not limited to the cost of materials. There is also the cost of labour to consider. Does your business currently use a shift roster to track how many people are required per shift to meet a certain production output? Keeping a formal record of how many employees are on shift and how much is produced per shift is essential to understand 1) the labour requirements of your business, and 2) the true cost of unit production.
Raw input
So far, we’ve figured out the unit of production and the cost of labour. Now, we’re unlocking the power of understanding raw inputs. Consider this an invitation to perform a detailed analysis of how much raw input goes into each product that comes out of your company.
Uzenzele Holdings regularly encounters businesses that turn over hundreds of millions of Rands per year, and yet do not have a record of their raw input metrics in satisfactory detail for financiers. Consider these questions:
- How much raw material do you need to purchase?
- From whom are you purchasing these raw materials?
- What are your supplier’s payment terms?
- What is the volume of raw input that goes into each product?
The answers to these questions are essential for us to work out how much you need for your working capital cycle.
The bottom line: keeping evidence always pays dividends
In matters of production and other areas of the business, implementing a formal system of evidence tracking and retention is an excellent strategy to prepare for a robust funding application. Capital-raising experts like Uzenzele Holdings can use evidence like supplier invoices and accurate payslips in assumptions we build into financial models. Any and all documentation that helps us accurately calculate the costing of your business is extremely valuable to building a convincing case for prospective funders.
Uzenzele Holdings can help collate these details and advise your business on how best to strategically present this information to a network of over forty funders. Get in touch to explore our case studies and to see how we’ve done it before.