Small and medium-sized enterprises (SMEs) in New Zealand face competitive markets, fluctuating macroeconomic conditions and are not immune to the effects of geopolitical shifts.
To navigate these challenges and achieve sustainable, long-term success, businesses often need external investment or access to working capital injections. If securing investment is a consideration for you and your business, this article will help explain why you may need investment, how you can procure investment and guide you in preparing your business to attract potential investors.
Does Your Business Need Investment?
The first step in preparing your business for investment is determining if it’s necessary. Several reasons might lead your company to seek outside funding. However, before seeking equity investment, consider whether working capital solutions might be a better fit for your current needs.
1. Are you looking to expand?
Growing operations, scaling production, entering new markets and increasing service offerings all require substantial cash flow and access to working capital. For many SMEs, this isn’t always possible without outside investment or alternative financial solutions.
2. Are you looking to innovate?
Like expansion, innovation aims for long-term success but requires short-term working capital. Whether developing new products, importing new stock, or improving existing offerings, external investment could be necessary.
3. Do you need more financial stability?
Liquidity is important for SMEs, especially during challenging economic times. Procuring investments and attracting investors strengthens a balance sheet and improves financial stability.
4. Do you need to gain a competitive edge?
As an SME, gaining a competitive edge often requires investing in technology or resources. This may require external investment.
Ultimately, businesses seeking investment pursue long-term goals that can be challenging to achieve through internal funding alone.
What is the Difference Between Investment and Working Capital Solutions?
What is the difference between seeking investment in your company and applying for working capital solutions from a financial institution, like ScotPac?
In brief, an infusion of working capital through investment is focused on long-term growth and success. In return, investors receive equity in the business – that is, partial ownership. In contrast, working capital solutions address immediate cash flow needs and do not involve the financial provider taking an ownership stake in the business.
Investment capital is typically aimed at generating returns over time, either through business profits or equity appreciation. This is why investment is often pursued as a pathway to support expansion and drive growth.
Working capital solutions are designed to help cover day-to-day operational expenses or cover shortfalls in cash flow. For example, Invoice Finance allows businesses to borrow funds against their outstanding invoices. This improves cash flow and access to working capital without the business needing to wait for customer payments. Similarly, Business Loans provide immediate cash injections, repaid through regular instalments (plus interest), without the lender taking any ownership in the business.
How to Procure Investment in New Zealand?
SMEs in New Zealand have a few avenues to consider when seeking investment for their company.
Angel Investors
Angel investors are generally wealthy individuals who provide capital in exchange for either ownership equity or convertible debt. They sometimes operate independently and sometimes as part of a fund, but always bring valuable expertise and experience, as well as their network and money, to the table.
Venture Capital
Venture capital firms specialise in investing in start-up businesses and SMEs with high growth potential in exchange for equity, i.e., part ownership. Venture capital firms are focused on making a return on their investment within a few years and so are focused particularly on scalable businesses.
Crowdfunding Platforms
The internet has made it possible for SMEs to raise small amounts of money from a large number of people. In return, these investors may receive equity or rewards as a way of supporting and ‘kick-starting’ the business.
Government Grants and Loans
While not technically an ‘investment’ in the sense that the government does not receive equity, government grants and loans still represent a form of macroeconomic support. By providing funding options, the New Zealand government aims to drive innovation and foster growth. As a result, these grants and loans are often targeted toward specific sectors or market segments.
For more information on grants and programs for small businesses, read our article here.
Friends and Family
This form of investment is the least ‘formal’. Some start-ups and small enterprises turn first to their personal network, including friends and family, to seek funds and investment in return for equity. While those business owners fortunate enough with strong networks can find this route successful, it is not necessarily practical for all SMEs.
How to Prepare Your Business for Investment?
The best way to attract potential investors is to ensure your business is well prepared. But how do you do that?
Here is our step-by-step breakdown.
- Business Plan – Develop a strong business plan that clearly outlines your business model, market analysis, competitive landscape and financial projections. This will provide insight into how you plan to use the investment funds strategically.
- Financial Records – Investors often want to assess the financial health of the business, so ensure your financial records are up to date. These should demonstrate positive cash flow, include pre-calculated key metrics to highlight profitability ratios, and clearly showcase financial stability.
- Highlight Strengths – Make sure to highlight the expertise of your management team, their relevant experience and their ability to execute the business plan effectively.
- Prepare a Pitch – Prepare a concise presentation that summarises your business, your business plan, the market opportunity and your company’s financial needs (including relevant challenges and risks). Always be genuine and transparent to build trust.
- Network – The more you are able to attend industry events, pitch competitions and networking functions, the better position you will be in to connect with potential investors.
ScotPac – fuelling business success for over 35 years
The lending specialists at ScotPac bring over 35 years of experience in helping businesses across New Zealand and Australia access the working capital solutions they need to thrive.
If you’re a business owner aiming to scale your company but lack the financial stability or cash flow required to attract investors, don’t hesitate to reach out to our team.
Our specialists offer personalised consultations to identify tailored working capital solutions that can help your business attract investment and achieve growth.
To find out more, or to just start the conversation, contact us today.
