This article is copied from Pro.Manchester's SME Club. Many of you have met Paul Gower before at our events, and I thought the article is too good to be not shared with you.

Management teams are beginning to realise that growth plans can only be put on hold for so long. After all, who can predict with any accuracy when the economic situation will improve? For those businesses that are doing well and outperforming their peers, now could well be the time to grasp the nettle to increase competitive advantage. Many SMEs are accessing investment capital to fund the expansion of their business.

1. Management, management, management

Private equity firms invest in people – people who have run or who are likely to run successful operations. Potential investors will look closely at you and the members of your management team. Does the team have relevant industry sector experience, a clear team leader and a team with complementary areas of expertise? This is the ideal scenario but those private equity investors who invest in SMEs recognise that often the “team” may often be incomplete or does not have sufficient experience – look for those investors who can help you identify any areas that need strengthening and be able to introduce you to the people to fill these gaps. Remember, investors may be willing to fund getting the right people into business to take it to the next level.

2. Potential to expand

Private equity investors are interested in companies with an opportunity to expand and grow, managed by experienced and ambitious teams who are capable of turning their business plan into reality. Does your company have high growth prospects and are you and your team ambitious to grow your company rapidly?

3. Capacity to create strategic value on exit

Every private equity investor will look for an exit at some stage. Although in its simplest form this could mean growing the business to a size whereby money could then be raised through traditional finance to fund buying out the equity investor, what really excites investors is the capacity to create strategic value. Can you identify those opportunities? Can you position your company so that it can be acquired for a higher value than the current level of profit implies?

4. Business Plan

One of the main purposes of a business plan when raising finance is to market your business proposal. It should show potential investors that if they invest in your business, you and your team will give them a unique opportunity to participate in making an excellent return. Don’t be put off by the expectation that you have to produce an “all singing and dancing,” business plan. Sometimes “less is more,” so focus on clarity rather than comprehensiveness. A well crafted succinct summary of what you are attempting to do will create interest. Once you have grabbed the attention of the investor, they will let you know what else they need to know.

5. Financials

Developing a set of financial projections will help to demonstrate to the investor that you have properly thought out the financial implications of your company’s growth plans. Private equity firms will use these projections to determine if your company offers enough growth potential to deliver the type of return on investment that the investor is seeking and whether the projections are realistic enough to give the company a reasonable chance of attaining them. A company without a financial plan is a company without financial direction.

6. It is not an investment it is a partnership

Are you willing to sell some of your company’s shares to a private equity investor? You should be absolutely sure that the relationship between you and the investor is a strong partnership, in reality a “Marriage.” It must be a trusting relationship where neither party is trying to get the upper hand. Interest of both parties must be aligned, working together to an agreed strategy; therefore the management should attempt to really get to know their investor before accepting investment.

7. Identify appropriate investor

Private equity is not just about the money – especially for SMEs, there should be an opportunity for the investor to add value. Identify those investors with an interest in your industry and for the type of deal you are proposing or those who might have a preference for investing in your region. Does the investment team have strong skills and experience and does the firm have business networks that could add value to your business? This could include local private equity specialists and regional offices of national players. Manchester has a vibrant private equity industry, so use it. You don’t need to go to London!

8. Do your due diligence

When you are engaged with potential equity investors be as thorough with your due diligence as they should be on you and your business. Review their website and see the companies in which they have invested. How successful have they been? Have they invested in your sector? Ask to be introduced to management teams in both their current portfolio and from previous investments – what were their experiences?

9. Advisor

Professional advisers can provide a vital role in critically reviewing the draft plan, acting as “devil’s advocate” and helping to give the plan the appropriate focus. Several of the accounting firms publish their own detailed booklets on how to prepare business plans. Fund raising can be a time-consuming business and you don’t want it to detrimentally impact on the business, the use of advisors to support you can help minimise this risk. Again Manchester has a vibrant corporate finance community; you don’t need to go outside of the region.

10. Consider it

The availability of equity finance for SMEs located in the North West has never been better. The North West Fund is a £185m fund that provides debt and equity finance from £50,000 to £2m to SMEs businesses based in or relocating to, the North West of England to start, develop and grow. Although this regional fund cannot finance Management Buy Outs, “MBOs” there are many Manchester-based managers of Venture Capital Trusts “VCTs” who can. In YFM’s 25 years’ of investment experience, we have found that at or near the bottom of the economic cycle is one of the best times to start expanding your business.