A tip for growth companies: abroad the use of money doubles
It often comes as a surprise when sales lag behind expectations. An entrepreneur’s advice is to seek local partners.
Growth companies entering international markets badly underestimate their need for financing.
There are many reasons for this.
The most common reason is that the business launches organised by enterprises abroad are in fact much more expensive and more time-consuming than had originally been planned.
The discrepancy between plans and reality is explained, among others, by unexpected turns of event and more sluggish sales of products or services on targeted markets.
“The costs are always at least twice as much, and the need for external financing three times greater than what had been planned. When drawing up their budgets, companies are slightly overoptimistic. The fact is that an enterprise must get loads of visibility on the consumer market. Achieving credibility in business between companies takes time,” says Titta Mantila, Vice President, SME Financing at Finnvera.
She heads the Growth and Internationalisation Team at Finnvera.
According to Mantila, Finnish companies are told repeatedly about the importance of sales skills. However, skills in financing and economics should not be underestimated.
Shareholders’ equity should account for almost one third of the total need for financing. Additionally, it would be good to think about what happens to the company if everything goes wrong abroad. In other words, risk tolerance.
“Nor does it hurt to learn about the target countries and their business culture,” Mantila continues.
There are no major differences in the financing needs of growth companies and companies with a slower growth pace. Working capital is the most common reason for seeking external sources of financing.
With growth companies, everything is just a lot bigger. The financing granted to a growth company by Finnvera is on average about EUR 400,000.
“No one can set up an international business with 100,000. Companies turn to us to obtain financing for expanding their own organisation, recruitment, sales and marketing, and for launching on international markets,” Mantila lists.
She says that, for instance, Finnvera can offer several financing solutions for working capital needs and starting business abroad.
Seek partners
Katja Lindy-Wilkinson, Marketing Director of Picote Oy Ltd and CEO of Picote Solutions Inc., admits that a perpetual shortage of resources has also slowed down the growth of the company based in Porvoo, Finland.
The company renovates drainage pipes and develops and manufactures pipe lining tools, and has been able to forge ahead abroad in step with financial resources.
“Equipment sales abroad began in 2012. Our German partner wanted to become a reseller, and that gave us a good start,” Lindy-Wilkinson reminisces.
Today, foreign buyers account for 88 per cent of Picote’s equipment sales. The company, with a turnover exceeding six million euros, has 19 resellers around the world.
Lindy-Wilkinson, who has lived in the United States for years, says that resellers are supported in many ways in their efforts to succeed. In return, resellers bring added value with their knowledge of the local markets.
“The chances of success are much better if you find local partners. It’s also worth remembering that there are many Finnish expatriates living all over the world. We, too, hired a Finnish consultant in the USA. That person was an excellent support for us,” Lindy-Wilkinson says.
FACT: Does the lack of money slow down growth?
- According to companies, the main factors keeping a glass ceiling on growth are sales and marketing skills, the availability of competent staff, the acquisition of financing and the capacity of owners to take risks.
- During the first months of the current year, Finnvera’s financing for enterprises exceeded 300 million euros. Growth companies accounted for 49 per cent of this.
- Despite their potential, not all companies seeking solid growth have a long, economically profitable history behind them. In consequence, their rating may not be high enough. Rating affects the price and availability of money.
- The rule of thumb is that loan financing must be accompanied by a sufficient amount of equity. It can be considered that 30 per cent is a sufficient amount.
Text: Kimmo Koivikko
