Go with the flow...
John Davies interviewed by Talk Business Magazine
Since the economic crisis of 2008, many have turned to alternative sources of finance as a method for obtaining the funds they need to grow their businesses. We catch up with the director of one such alternative lending company, John Davies of Just Cash Flow PLC, to discover how he sees the sector developing and his tips on creating a successful company in a busy marketplace
Cash is king. Open any business book or listen to any business ‘guru' and this is something you will hear espoused time and time again. Without funds, businesses simply cannot grow.
For most SMEs the traditional route to finance and a healthy cashflow is the high-street banks. However, since the 2008 recession bit hard, getting funding from one of the traditional lenders has been like trying to pull teeth from a crocodile – nigh on impossible! The somewhat cumbersome and bureaucratic nature of the big banks has meant that they've been unable to respond promptly and flexibly to the demands of small businesses in need of quick access to funds.
Much like a pride of lions, when the leader seems weak, there will be a number of challengers to the throne. Younger, sleeker and stronger, they make their move to upset the status quo and take over the pride. This is essentially what has happened across the world during the downturn - simply swap the African plains for the lending market and you've almost got the full picture (the young upstarts aren't quite on top yet, but if the old leaders don't adapt it may not be too long).
This is no different in the UK funding sphere, and as the pride's leaders have begun to falter, up have sprung a whole host of new competitors – affectionately dubbed ‘alternative' lenders. From credit lenders to crowdfunding to P2P borrowers, there are a smorgasbord of new options for the cash starved SME.
One such upstart which is now gaining a firm hold on the growing market (an estimated £4.4 billion will be lent by alternative lenders by the end of 2015) is Just Cashflow. Dubbed as ‘an alternative to a bank overdraft or business loan' Just Cashflow offers flexible funding solutions up to £500,000 to businesses helping them manage their cash flow.
So, given the competitive nature of the market, how has Just Cashflow managed to carve itself a niche and rise above a sea of competitors to emerge as one of the market leaders?
As director John Davies explains, having competition can actually sometimes help to push your brand forward.
“Competition is always good as it raises your game,” explained John. “Firstly you have to look and see who your competition is. For us it'll be the main banks, who have always been the authority in the market. It's difficult for them to respond right now to the needs of SMEs who are looking for a quicker decision than they can give, especially with quick online decisions these days. This is where we come in. One of the big reasons SMEs turn to lenders like ourselves is service and quicker decision making. One of our customers summed it up neatly, saying ‘You're like business banking used to be.'”
The Just Loans Group, which is the parent group of Just Cashflow, has achieved targeted growth, and as of the 2nd January 2015, the Group had a market capitalisation of £10 million. To get to this point though, there were obviously many lessons and struggles along the journey, from which the company had to learn in order to prosper. It hasn't been an easy trail either, and John believes it takes a lot more than just hard effort. Anyone looking to replicate their success – whatever their sector – will need to follow some of his wisdom in order to achieve their goals.
Initially young companies between 18-24 months old were targeted that were virtually invisible to traditional finance sources. However, within two months a review was held that showed these businesses generally lacked assets and coherent business plans. A new strategy of targeting slightly older businesses looking for a finance partner was rapidly and successfully implemented.
Innovation has come in the shape of becoming Europe's first alternative lender to provide card access for business finance at the point of sale. The BusinessPlus MasterCard from Just Cashflow has just been launched and John explains, “Today it's not enough to simply provide SMEs with funds, they also need quick and effective access to help them manage their day to day transactions and cash flow.”
He is also quick to point out that there is no ‘magic spell' for success; “There's no recipe, there's nothing you can bottle. Everyone who has had success has had to put in the hard work,” says John. “But just working hard doesn't necessarily guarantee you success. You have to want to learn the key fundamentals of business, such as your marketing, your selling, and particularly your numbers as you have to understand how each part of the business actually relates to a number; what's the number of your sales?; what's your cost? What's the delivery cost? All of these are critical in getting the basics of your business right.”
He continued, “However, that's not to say you need to know everything. Another important thing to remember is that you simply can't be a master of everything. You need people who can provide the appropriate help when it's needed. For example, we have someone who is head of social engagement, which covers our Twitter, Facebook, and other social media channels. I'm 55 years old; I've tried to learn these things, but it's better to have someone who understands these properly to do the job.”
It is common knowledge that many people don't start a business because they don't have access to the funding they need to succeed. However, as with many things that are ‘common knowledge', the perception is often based on hearsay and rhetoric and doesn't actually reflect the truth. This is what John believes, as he explains that there is access to funding to get your business off the ground, as long as you know where to look.
“That there is ‘no access to funds' is a misnomer, a myth. What we tend to find is that people don't start a new business because they're not confident in what they're going to do. There's plenty of options available to anyone looking for start-up loans and the like, such as the government start-up scheme which allows them up to £25,000 to fund their business at very attractive rates. As long as they have a viable business plan they will get access to these funds. Where it gets more difficult is when they've started trading, and things haven't gone quite to plan,” he explained.
With applications in their hundreds on a daily basis, John has seen almost everything when it comes to business owners funding proposals. Unsurprisingly, those who don't manage to gain approval often make the same tired mistakes over and over again. Whether it be not knowing what you really want to do with the money or not having the numbers to hand, there are certain things that will guarantee an application gets thrown in the trash quicker than a Jedward album in the office ‘Secret Santa'. For SMEs looking to secure much needed cash, John has a wealth of top tips to make sure you avoid those same mistakes in future.
“One of our concerns as a responsible lender is that when people come to us they just don't know enough about their business. For example we ask for a simple business plan. We're not looking for 50 pages, just a simple one-pager explaining what the business does and how it goes about doing it will suffice, but sometimes they struggle to articulate that,” smiled the director. “The amount of people who say ‘oh you'll have to ask our accountant about that' is incredible. You need to know these things as a business owner, especially if you're applying for funding.”
Given the experience John has had with Just Cashflow, what advice would he give to anyone reading this that is looking to start their own venture? The answer may surprise you;
“Don't. At least don't do it immediately,” states John. “Before you decide to go ahead with anything stand back for a second and ask why you're doing it. Being in business is lonely, painful, and the chances are stacked against you, so consider exactly what you're doing before you jump into a business. Then, once you think you're ready and have a plan, go and ask someone else – preferably someone else in business or industry, not family or friends as they tend to agree as a courtesy – and find out what they think of your idea. Get proper feedback and tailor your idea accordingly.”
As for the future of the growing market, John thinks things will continue to improve as banks and alternative lenders further define their roles and understand their customers' needs and wants.
“I think as we go five or 10 years into the future, we'll see more of the change we're already seeing continue to play out. Banks will focus on big infrastructure, allowing challenger lenders like ourselves to focus on SMEs. We feel there is a gap to provide a proper business backing service to SMEs, for businesses like ours to give the customer what they want – speed, agility, and information.”
Whatever the future holds for the industry as a whole, you can guarantee that John and his team will be at the forefront of the ‘revolution', helping SMEs to start-up and grow for many years to come. And that's something you can bank on.
“Competition is always good as it raises your game.”
“There is absolutely no magic spell for success. There's no recipe, there's nothing you can bottle.”
“Being in business is lonely, painful, and the chances are stacked against you, so consider exactly what you're doing before you jump into a business.”
Download the article in its original format
Date Issued November 2015.
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