Business owners in the professional services sector are keen to grow and develop, just like everyone else, and can also need a financial boost.
Unfortunately they may find it difficult to access commercial finance, often falling outside the mainstream lenders’ criteria.
The sector includes “office-based” professionals who provide expert services to clients, such as lawyers, accountants, marketing consultants, surveyors and architects, to name but a few. It also takes in medical professionals such as vets, dentists, chiropodists and opticians.
In the old days before the last financial crisis, these businesses would have funded improvement costs with a bank overdraft. But now banks have largely withdrawn from lending against anything except property or “hard assets” like vehicles, plant and machinery.
Among the biggest growth devices for professional services are acquisitions and mergers, where a company expands by merging with or acquiring another existing business.
Refurbishments are also a popular business boost, but a significant problem is that most professional services firms choose to rent a premises rather than buy it, so they can’t raise funds against the building itself.
The biggest cost to many companies, especially accounting and legal practices, is the salary bill. They employ well-qualified, expensive people who need to be paid each month and, in the case of lawyers, invoices are usually only raised when a transaction or case is completed, while accountants tend to be paid when the company report and accounts are finalised. Professional Indemnity insurance is another major expense.
There are, however, plenty of alternative opportunities out there. Our general advice as a commercial finance broker is: “Don’t put all your eggs in one basket.” The best way to pull together enough capital for any project is to take a “hybrid” approach. Each business we deal with is individual with different needs and our view is that there’s no one-size fits all solution.
Your broker will have access to a whole range of options and will mix and match these to create one package. We’ll sit down with you and find out more about you and your business – what you do, how you’re looking to grow, what purchases you might be making and any potential problems with your cashflow. This gives us a firm starting point to match you with the right hybrid package that will work for you.
A commercial finance broker is not tied into any particular funders so can make multiple applications, using the relationship with various lenders to ensure it all falls into place at the right time.
They can negotiate the better interest rates which are normally available only for hard assets rather than the higher rates that soft assets usually attract.
So, for example, we might recommend asset finance, where you borrow against your existing assets to fund the refurbishment, new furnishings and equipment. You can even fund soft assets such as the installation element of a project. This option is especially popular for buying medical equipment, audio visual, IT and communications equipment and installs.
Work in Progress (WiP) finance can fund a project that is currently underway and ease cashflow while you await commission payments or litigation fees for a long-running job. This option attracts flexible repayment terms and is ideal for businesses of all sizes, generating immediate working capital.
Unsecured practice loans are available for acquisitions and mergers, expansion and relocation, and refurbishments as well as tax, VAT and cashflow funding, and capital expenditure (asset finance.)
If a practice has a large pension pot they can use pension-led funding, borrowing up to 50% of it towards the purchase of premises or for a refurbishment scheme.
A great way to achieve growth ambitions while preserving business cashflow is a partner buy-in or buy-out. This can set the scene for a company restructure, offering a full share of profit, 100% control over your business decisions and complete business ownership. Here again though, high street banks are not keen to support partner buy-outs and the process can often be very drawn out, so ask your broker about alternative funders for this option. Those are just a few of the solutions. The important thing is to get the mix just right, so do please take expert advice before applying for any finance for your business. As experts yourselves I’m sure you will appreciate that already!