In such a tough business and economic environment it is entirely understandable that many small and medium-sized businesses, which are finding bank lending increasingly difficult to source or renew, should consider turning to private equity and development capital providers. But how can SMEs best present themselves to such potential investors?

Private equity firms assess a number of key factors in deciding whether to invest in a business. So a starting point would be to assess your own management strength, consider whether there are any weaknesses and review whether the firm has the right management to actually deliver on its business strategy. LDC can and does help firms it has decided to back with identifying and recruiting additional executives to help bolster their management but we need to see that there is a strong enough management foundation on which to build.

Companies need also to be able to communicate effectively their or their product's USP or differential advantage and where the company sits in its market versus its competitors. Private equity firms are always looking for companies that have built a strong defensible niche and have a valuable proposition. It is even more valuable if it is scalable, if management have identified a clear path for growth and can demonstrate that there is a clear market opportunity.

Once these issues have been assessed then private equity investors will look at such factors as the robustness of your business model and how critical is your company/product to your customer's existence and whether the area you are in is cyclical and what factors drive sales up or down.

Once these questions have been addressed private equity firms will then want to look more closely at the details of a firm's business strategy, in particular, the following areas:

• how much pricing power does your company have?
• what affects working capital, is seasonality an issue?
• are sales accelerating and what is the underlying run rate and are margins sustainable?
• how do the management accounts and KPI's compare with last year?

Having assessed the concept and had answers to more detailed questions, such as those above, PE investors will then want to see evidence of past success, what has been achieved so far - the hard numbers! - and what is the company's five year plan. In particular, the focus will be on assessing what the size of the business is likely to be in say five years and if the company's business plan shows enough evidence that management understands the challenges this places on them and whether they have adequately planned for them.

Lastly, what private equity investors, and indeed all investors, loathe is surprises. It's far better for management to disclose and potential forex or bad debt problems than try and keep them hidden and have them disclosed in any due diligence. If SMEs address the points listed above then, in my view, they will have every chance of attracting development capital to help them on their next phase of growth.

For more information please visit www.ldc.co.uk [1]