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Financing models for businesses in 2021 - how fintech is helping companies to balance the books during the pandemic

It’s never easy running your own business, but when it comes to challenging times, 2020 really delivered a blow to many entrepreneurs -  including me, writes Sara Green Brodersen, CEO, Canaree.

In addition to human suffering on a massive scale, Covid brought unforeseen chaos to markets and disruption to companies across industries with lockdown closures and social distancing measures.

Like many other business owners, I had to find a way to manage my cash flow and stay afloat - even with support from the government, which thankfully stepped up and offered furlough schemes, deferred tax payments and loan support.

Financing models for businesses in 2021 - how fintech is helping companies to balance the books during the pandemic, via Sara Green Brodersen
Sara Green Brodersen, CEO, Canaree.

While many businesses graciously accepted government support,  we all knew that these temporary measures were not going to solve our long term problems - and when all of the propping up came to end, how many businesses would be strong enough to actually outlive the pandemic?

Before the crisis, things for myself and my co-founders were going pretty well. We had planned to close a fundraise for our new fintech firm Canaree by summer and we were already attracting new clients to our financial planning software platform.

When the Covid crisis hit, our luck began to dry up and it was clear that our own business plan would have to change. Liquidity became a problem and suddenly we had to find the means to stretch our runway by an extra four months.

Being an early stage fintech startup it wasn’t easy to stay on budget - it never is – but with some help from our investors we eventually raised enough cash to keep the lights on.

During this turbulent time, we looked at the fintech options that were available to businesses. Through our personal use and research, we gained some valuable knowledge that’s worth sharing with other entrepreneurs, who, like us, lived through the pandemic and now have to navigate the challenges that still lie ahead.

Here’s a handful of fintech innovations that offered a lifeline to many businesses during the crisis. Thanks to them, many were able to survive this wretched year - while some even managed to thrive.

Automated financial planning

Even without a pandemic or economic crisis, most SMEs and startups don’t succeed, with only 10% making it through the first year.

One of the biggest causes for this failure is poor financial planning and a lack of understanding around what’s needed to generate enough revenue or raise external capital.

Burning through the cash runway too fast is the knock on effect of not developing a sound, financial business plan for the year.

The pandemic only exacerbated these weaknesses, therefore it made sense that during this crazy economic period startups and SMEs had to do everything they could to optimise their business model for success.

Having built companies before,  one of the things I always struggled with was the operational side of the business - you don’t set up a business to spend your time in Excel!  Especially when you’ve got a pandemic to deal with and a remote team to motivate.

Fortunately, there are lots of helpful products out there to help manage that side of the business - all of which were available during the crisis.

Invoice financing and alternative funding

During the crisis,  funding alternatives such as equity crowdfunding sites Seedrs and Crowdcube, as well as peer-to-peer (P2P) lending providers like Zopa were expedient in providing SMEs with quick and flexible short term financing that banks couldn’t offer.

These alternatives were also nimble enough to distribute funds with government schemes faster than banks as well, thanks to automated onboarding, ID verification and instant bank account setups.

Invoice financing technology such as the one developed by Accelerated Payments was also helpful in helping SMEs maintain a steady cash flow - especially those that were scaling up during the pandemic - notably the drinks and spirits  companies.

Growing businesses always need working capital as well as money to secure their supply chain - something that banks can seldomly finance if the companies aren’t big enough to back.  The pandemic made it even more difficult to get cash through traditional lenders.

Fortunately Invoice financing was designed to tackle this issue by enabling companies to borrow the money they need to cover unpaid invoices that a client owes a business through an online process that is quick, affordable and reliable.

When the invoice is paid by the client, the business pays a tiny percentage of the invoice amount back to the invoice financing company as settlement for borrowing the money. This gives businesses enough cash runway to maintain their cash flow effectively.

Banks, payments and book keep - tailor made SME tech

Other fintechs that we used to run our operations smoothly during the pandemic and which also helped many others include the recently anointed tech unicorn Stripe, which handles all of our subscription payments and vouchers. This is a very cost effective and easy to use processing platform for Internet based companies like ours, that enables you to transfer money from a customer's bank account into your business's account through credit or debit card transactions.

Revolut has been our challenger bank of choice for all our payments, revenue and salary. It helped us keep track of ingoings and out during the pandemic, has lower fees than traditional banks and is also easy to access.

We used to do all of our banking through the SME focused provider Tide but decided to switch over to Revolut this year as Tide couldn’t handle large incoming amounts, and we kept having to ask our investors to pay in tranches so we could run our business.

This was inconvenient for everyone involved and I worried it would be annoying to the investor if we kept having to do this - and during this critical period we simply couldn’t risk putting a damper on a valuable relationship by having to keep asking them to top up our account - especially when one simple deposit of the funds in full was preferable to everyone.  Tide was great at the beginning, but for scaling businesses like ours we needed a bank that could grow with us.

Finally, Xero proved to be a fantastic tool for our accounting team.  This cloud based system is  specifically designed for small businesses and like google docs, allows you to give people access to the latest latest financial numbers, so that everyone from the accountant to the bookkeeper knows what’s happening with the business.  It's fast and simple to use, and helps you to keep on top of all of your financials so you can make the very best business decisions in real time.

2020 was a dreadful year, but I learned so much along the way - and I  hope that other companies did too. I’ve also tried to stay focused on achieving a  more positive outcome for the months ahead and I’m feeling positive.

This might sound naive, but being optimistic is an integral part of every entrepreneur’s DNA - it’s how we’re built!  Without this secret weapon nobody in their right mind would create anything from scratch- there’s too many obstacles in the way and so many businesses fail.

Especially this year.

I hate to think of the business casualties that were brought on by the world’s unprecedented pandemic - but I also believe that we all gained some important  insight from these struggles and we can apply this knowledge in our future endeavors.  As Samuel Beckett famously said,  “Try again. Fail again, Fail better”  - but maybe next time leverage some of the fintech that’s out there to minimise the risks that lie ahead!

See also: Exclusive Interview: Pamela Chase Dyson, CIO, Federal Reserve Bank of New York