Business often scoffs at Government grant opportunities – grant applications either demand to much detail, or appear too persnickety, or take too much time jumping through ever narrower and seemingly less relevant hoops. Yet many successful Australian businesses and exporters have secured significant Government grant support along the way.
What are the benefits of grants?
Government grants offer funding when bank lending or investment capital is not available either because the business is an early stage start-up regarded as high risk, or the business does not have the cash flow to fund new product development. Government support fills this market gap. These days most grant funding requires matched funds from the business applicant just to ensure everyone has ‘skin in the game’.
The benefits of Government funding are obvious. But the grant application process is itself meaningful because it asks business owners four priceless questions.
What is your business model and how will it make money?
Grant applications oblige the business owner to articulate and validate all aspects of his/her business model – what is the product, how is it protected, how ready is it for market, what is the size of the market, who is the target customer and why will they buy it (the value proposition), how will it be priced, how will it be marketed / distributed, how will the product be piloted and with whom, who are its competitors / substitutes, who will manage the business, who is advising the business, and how it will make money (the forecast financial model).
All questions any equity Investor would ask. The Government is also an investor. It wants an ROI from its business grant expenditures in terms of growth / employment and ultimate taxes. This is the economic return the community expects.
Why is Government funding needed and how would you spend it?
Grant applications require a clear timeframe and auditable milestone-based deliverables to show how taxpayer funds will be spent. This demands a level of structure, prioritisation and focus that start-ups and established businesses sometimes haven’t thought about, or don’t think they need. This process makes a business stop and think about what it needs to do to achieve each project milestone, how each milestone will advance its project objectives within a project budget. This is the value of planning. The plan and spending profile might adjust but the planning provides the confidence to know what, when and how to adjust.
How realistic are you? Do you really know your business?
Grant Due Diligence requires validation of each of the assumptions implicit in an applicant’s financial forecast. The financial forecast is a numerical statement of the business model. How many units will be sold when, at what price, to whom, at what cost, and how certain are you that this will hold true. This degree of helpful scrutiny makes a financial model real and practical, and as intrusive as an Investor DD process often is.
Are you ‘grant ready’ ?
Businesses that find grant applications troublesome may not be ‘grant ready’ in the same way they may not be ‘ínvestor ready’. Grant success is correlated to business success because both require an intimate knowledge of the business strategy, how it will be implemented, and why it will succeed. Grant recipients are more likely to fail as businesses if they see grant applications as a story-telling process to secure Government funding rather than as a foundation plank that helps them plan for business success.
In the same way consultants who sell their services as ‘grant writers’ are likely more invested in story-telling not in the success of their applicant businesses. After all, the true test of the value of a grant is how it enables business success. And the true test of strategy is to deliver that outcome.