The amount of management time committed to finding the right investor for a business can be costly and onerous.

In the absence of being able to secure credit or investment, the alternative is to rationalise, cut discretionary spending or sell off non core assets.

That may improve cashflow and profitability but it would be a mistake to consider that such actions taken by themselves are indicative of an improved market economy. It just means that some businesses are learning to operate on a smaller scale, within a diminishing market.

The Enterprise Finance Guarantee scheme, has tried to increase the flow of bank lending for businesses but this is against a tide of risk-averse attitudes among banks focused on rebuilding their capital base.

So what can you do? Businesses with low margin revenues, such as the mainstream retail or restaurant sectors, are particularly susceptible in a depressed economy. On the other hand, there are undoubtedly opportunities for some. The outsourcing industry does quite well in attracting investment funding by providing a cost-effective alternative to in-house teams, eg IT or HR. The manufacturing sector will benefit from a weak pound in relation to exports.

Factoring or invoice discounting are effective but expensive ways of financing increased sales, but are not designed to provide funding for gaps in working capital. So, it is important to ensure your lending proposition stands up on cashflow and profitability underpinned by a robust sales forecast.

Housekeeping is important. Businesses with a strong management team will find it easier to raise cash where they are able to produce accurate and timely financial reports with key performance indicators. To show a recurrent revenue stream is as important as showing diversity in that revenue stream, because companies relying on a handful of major customers will be vulnerable. Corporate governance has its place too.

Ensuring that board meetings are correctly held and minuted will leave potential investors with a clear impression that there is sufficient transparency and strategic direction at board level for decisions to be made to promote the success of the company. Have a good understanding of covenants in the loan agreement, some of which will be geared to ongoing trading results, measured at frequent intervals to assess whether the business is operating within agreed levels. Whether by bank loan funding or equity investment, it is important to interpret them in the right way and know how they will affect the business.

: : Max Harnden is business law partner at Gotelee Solicitors.