Raising for manufacturing and physical products: stock, machines and working capital

A business that makes things needs cash for machines before it makes anything, for stock before it sells anything, and for the gap between paying suppliers and being paid by customers. Founders raise equity for all three and give away far too much of the company. Investors who understand physical businesses expect a mix, and the listing should show you do too.

The working-capital cycle

Investors will ask four questions and the forecast must answer them: how long from paying for materials to selling the finished goods (stock days); how long customers take to pay (debtor days); how long you take to pay suppliers (creditor days); and therefore how much cash is tied up per £1 of monthly sales. A business with 60 days of stock, 45 days of debtors and 30 days of creditors has 75 days of sales locked up at any moment. Growing sales by £100k a month needs £250k of extra working capital — before profit. Founders who present this calmly are trusted; founders who are surprised by it in the first call are not.

Fund the assets with asset money

• Machines and equipment: asset finance or hire purchase, secured on the machine, 5–8% over three to five years. Almost never equity.
• Stock: stock finance or a revolving facility from a specialist lender, or supplier credit negotiated hard.
• Debtors: invoice finance if customers are good and slow.
• Equity: for the things nobody will lend against — product development, first production runs of a new line, the marketing that creates demand, and the buffer.

A £600k need might be £200k asset finance, £150k stock facility and £250k equity. Investors back the £250k more readily when they see the rest is structured, and you keep far more of the company.

The evidence that convinces

• Gross margin by product after all direct costs, including freight and returns.
• Orders in hand and repeat order rates. A trade customer who reorders quarterly is worth more than a one-off retail spike.
• A manufacturing process that is documented and could be run by someone else, or a contract manufacturer with a signed agreement and capacity.
• Certifications and compliance already in place (CE/UKCA, food safety, whatever applies).
• A clear answer on intellectual property — design rights, trademarks, what is protectable and what is not.

SEIS/EIS

Manufacturing qualifies and is well liked by HMRC; buying plant and stock is qualifying growth spend. Investors in physical businesses are often SEIS/EIS-driven individuals with a manufacturing background — make it easy for them.

Questions founders ask

"Our margin is 35%. Is that fundable?"

Depends on volume and repeat. A 35% margin with strong reorder rates and low marketing cost can be a very good business; investors will want to see the path to 45% through scale purchasing or process.

"Should we raise before or after the first production run?"

After, if you can fund it any other way. A product that exists, ships and is reordered is fundable at twice the valuation of one that is about to be.

"We import from overseas. What do investors worry about?"

Currency, lead times, single-supplier risk, tariffs and quality control. Have a second supplier quoted and a hedging view, even a simple one.

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