In business, history is important but future prospects are equally crucial.
Nowhere is this lesson more clearly illustrated than in the Midlands. The
area’s rich industrial heritage includes coal mining, engineering and car
manufacturing, and its entrepreneurial spirit is evident as new businesses
spring up in place of the old. Midlands entrepreneurs are embracing business
sectors from retail to technology to entertainment. And where there are
entrepreneurs, there is a need for financing.
Damian McGann, head of commercial business, Midlands, at Bank of Scotland
Corporate, says what he looks for first is a strong management team with a
good history. “We look at the business as a whole, to see whether it has a
sustainable product, a healthy balance sheet, and at the marketplace that
the business is in. And it is fundamental that it has good management,” he
says.
“We look at the size of the market and the potential for growth. The Midlands
still has a lot of manufacturing and wholesale businesses, but a lot of
production has moved to Europe and the Far East and there is pressure on
prices. Successful manufacturing companies will be the ones who can get the
balance right between local and overseas operations.”
An attraction of the area, he adds, is its highly skilled workforce. His team
would also look at a company’s production capability as well as its product
line.
The finance available varies depending on the stage of a company’s
development, says McGann. “We are not into investing in business at the
research and development stage,” he explains. “But we provide a wide range
of financial options for businesses that have shown a record of sustained
cash flow over a number of years.
“Then we could look at asset finance, invoice discounting, debt solutions, and
even investing equity into a management buyout.”
McGann’s preference is for a management team that has delivered a sustainable
cash flow for three to 10 years and a good product. “When we do equity
investments we are in for the long term,” he says. “There is no pressure on
an exit time, which is different to working with a venture capital firm.”
The nature of Gary Nichols’s business, Dial a TV, meant that sorting out cash
flow was of paramount importance. Rather than acting as a straightforward
television retailer, which might buy a set for £300 and sell it for £400,
Dial a TV leases televisions and other domestic appliances to a range of
customers – the cash-rich customer who wants the latest plasma model, the
customer who wants to buy on a hire purchase basis, and those who can’t get
credit and are happy to have a “pay per view” model where they feed pound
coins into a meter at the back of the set.
The firm can make more profit than a retailer but may have to wait 48 months
to receive it. “The demands on our cash flow are enormous,” says Nichols,
who founded the Cambridgeshire company in 1991 with £60,000 of redundancy
money and a £100,000 bank loan backed by the government’s Small Firm Loan
Guarantee. “We couldn’t have borrowed the money without the government
scheme,” he says.
He arranged a block discounting facility, which meant the bank would lend him
money on the security of each customer rental agreement. Dial a TV also had
an overdraft facility that allowed it to spread payment of its £80,000
quarterly Vat bills.
Nichols now has 20,000 customers and has just received private equity funding
to the tune of £1m. “Investors see that it is a pretty big market and there
isn’t a great deal of competition,” he says.
Reel deals
Kailash Suri moved to England from India in 1981 to study business management
at Loughborough University. Instead of finishing the course, however, he
leased a farm he was working on and grew Asian herbs. The income helped him
to move into the buy-to-let property market.
When Suri, left, bought an art deco cinema in Loughborough with the intention
of turning it into flats, his career took another surprising turn. “I fell
in love with the building and decided to keep it as a cinema,” he explains.
That was the beginning of Reel Cinemas.
“We buy old cinemas and keep the theatrical feeling while installing modern
facilities, and we build new ones in areas where they haven’t got a cinema
any more,” he says.
Suri, 50, used cash and bank borrowings to grow the property and cinema
companies, now worth £30m each. He borrowed £2.7m from Bank of Scotland
Corporate to purchase his first cinema.
Reel now owns 16 cinemas and is expanding into projects such as hotels and
Reels on Wheels, a mobile cinema. The company is 100% owned by Suri and his
family. The most important thing in the business is customer service, he
says.
