Smaller businesses looking to accelerate their growth curve have more funding options than ever before, but as one prominent accounting and business advisor notes, it still all comes back to strategy. Here’s how to help a client who needs capital.
As advisors to growing businesses, practitioners are only too familiar with the travails of clients who need capital to innovate and scale their businesses.
While debt funding is the traditional go-to for established businesses, many advisors may be less aware of alternative capital options for fast-growing emerging businesses, particularly those with a technology focus, which today extends to many businesses, not just those with technology as their core intellectual property.
Matt Murphy CPA, managing director accounting and business advisory at Prime Financial, believes technology cannot be uncoupled from the business’s main strategy.
“Technology is the fabric of our world – everything we do now has a technology element,” Murphy says.
"It provides us an efficient, effective way of transacting and there are technology solutions out there for everything we need.”
Crowdfunding comes of age for small businesses
While funding alternatives can include grants and tax incentives, equity crowdfunding is a rapidly growing source of capital for many small businesses. World Bank statistics show that equity crowdfunding reached US$34 billion in 2015, up from US$6 billion in 2013. By 2025, it is predicted to reach US$300 billion.
“[Because] business owners are starting to use crowdfunding as an equity source, business advisors need to be aware of what they are and how they are used,” notes Murphy, a speaker at the Lorne, Hunter Valley and Brisbane CPA Australia Public Practice conferences, where he will delve into capital funding alternatives and their eligibility requirements.
Murphy not only acts as a business advisor but also provides virtual CFO (management accounting) services for start-ups through to entities eventually considering an initial public offering (IPO) listing.
His evolution from accountant to hands-on business advisor began 25 years ago after stints at the Australian Taxation Office and partner in an accounting firm. He spotted a gap in the market for small firms seeking more from their advisor than pure tax and compliance work.
Turning client needs into accounting services
Murphy started out by identifying individual client needs, turning those needs into services, then replicating products from those services which could in turn be provided to other clients.
“Back then, that’s what motivated me – to serve that gap in the market to help clients grow and run sustainable businesses and achieve the reasons they went into business in the first place,” he says.
“The reward aspect for me is that we are really making a difference in people’s lives. That’s the biggest enjoyment factor and main motivator.”
He believes identifying the best capital options for a business should start with strategy.
“The strategy provides the roadmap and financial accounting data becomes the road signs to determine if the business is heading in the right direction.
“The cash must be measured and monitored to ensure there is enough fuel to get to the destination. As such, we look at funding solutions to help the business grow in line with their strategy.”
Indeed, Murphy has recently written a book, Dream to Realisation, which serves as a primer for individuals starting their own businesses.
Dream to Realisation is available to members in the CPA Australia library.
7 ways to fund for growth, technology and innovation
Small, scalable businesses need to fund innovation and growth. They need sources of capital, which could be traditional debt, equity, tax incentives or government grants. Here are some examples.
Friends, families and fans (FFFs)
FFFs are a common source of seed funding for pre-trading companies.
The Australian Investment Network connects angel investors with aspiring Australian entrepreneurs.
There are two types of crowdfunding sources: rewards or equity.
The rewards-based model involves individuals contributing small amounts for a reward which might, for example, be pre-ordered products. A popular crowdfunding platform is Kickstarter. In contrast, the equity-based approach provides a platform through which investors can receive equity in the business. An example is VentureCrowd.
Legislative changes recently broadened the scope for people to invest via these platforms, which now allow retail investors, where previously they were only available to sophisticated investors.
These are fixed term programs offering seed funding, connections and mentorship. The Melbourne Accelerator Program (MAP) is one example.
Research and Development (R&D) Tax Incentive
This program encourages companies to invest in innovation benefiting Australia by providing a tax offset to engage in eligible activities.
Export Market Development Grants (EMDG)
The EMDG scheme is an Australian Government financial assistance program for aspiring and current exporters.
The Early Stage Venture Capital Limited Partnerships (ESVCLP) program aims to stimulate the Australian early-stage venture capital sector. It provides fund managers with flow-through tax treatment and tax exemptions on the share of returns for investors. Investible, for example, is an early-stage investment group that provides founders of high potential businesses the financial, human and intellectual capital needed to scale.