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• 02 Feb

  Raising Group Finance For Holding Companies Or Subsidiaries

  

  Raising Group Finance: Strategies for UK-Based Companies

  Introduction To Funding Groups Of Companies In The UK

  Operating a group of companies in the United Kingdom requires solid financial management. Managing group finance is a pivotal task for corporate success. There is more complexity involved when it comes to raising finance for more than one UK company within a single umbrella organisation.

  Raising group finance, particularly in the context of an organisation made up of several companies, poses unique challenges and opportunities. This article looks at effective strategies for raising finance across a group of companies, ensuring financial stability, and fostering growth.

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  Understanding Group Finance Dynamics

  Group finance refers to the management of funds within a conglomerate of companies operating under a single umbrella. It involves strategic planning, allocation of resources, risk management, and compliance with regulatory standards. The aim is to optimise the financial performance of the entire group, rather than focusing on individual entities.

  The Synergy Advantage

  One of the primary advantages of group financing is the ability to leverage synergies. Companies within a group can benefit from shared resources, expertise, and economies of scale. This collective strength can be a significant factor in securing finance on more favourable terms.

  We have occasionally seen groups where they initially seek to raise invoice finance for one of their subsidiary companies with the ambition of rolling it out group-wide in the future. Whilst this may seem like a safe approach it can overlook the scale benefits of considering the group as a whole. A large entity is likely to secure much more favourable terms than a single individual subsidiary on its own.

  Raising Finance: A Strategic Approach

  When raising finance for a group of companies, a tailored approach is necessary. Different entities within the group may have varying financial health, risk profiles, and funding requirements. Here are some strategies to consider:

  Receivables Financing Versus Other Types Of Funding

  There are of course a wide range of different funding options that an organisation may consider using.

  Receivables Finance For Groups

  Financing through products such as receivables finance can be an excellent way of financing a large group. Funders are normally able to run multiple sales ledgers to accommodate numerous separate entities whilst taking an overall view to leverage the synergistic benefits mentioned above.

  Balancing Risk and Reward

  Risk management is crucial in group finance. Diversification across the group can mitigate risks, but inter-company dependencies need careful monitoring. Ensuring transparency and compliance with financial regulations is vital to maintaining the confidence of those who are providing the funding.

  The Role of Technology

  Leveraging financial technology can streamline operations, improve reporting accuracy, and facilitate better decision-making. Investment in robust IT infrastructure and financial management software is essential for modern group finance management. Most receivables financing companies will be able to manage groups of companies and report at an overall and individual company level.

  By leveraging collective strengths, adopting a strategic approach to financing, and maintaining a robust risk management framework, groups can achieve their financial objectives and thrive.

  Acquisitions

  Holding companies are frequently involved with the acquisition of new businesses into their groups. In such cases, there may be a need to raise finance to pay part of all of the consideration to acquire a target company. Receivables financing may be a helpful solution and it may even be possible to leverage the target company's assets to generate the finance to buy it out.

  FAQs

  1) How does group finance differ from individual company finance?

  Group finance involves managing the collective financial interests of multiple entities, focusing on group-level profitability and risk, rather than individual company performance. Groups may be able to access more favourable terms than individual subsidiaries would alone.

  2) Can a weaker company in a group affect the group's ability to raise finance?

  Yes, weaker entities can impact the group's overall creditworthiness. However, strategic financial support from stronger entities within the group can mitigate this risk and most funders will take a view overall rather than based on each subsidiary standing alone. We have seen examples where perhaps a guarantee from a larger parent company can give enormous additional confidence to a lender and enable them to extend more favourable terms to a subsidiary company.

  3) What if a subsidiary is not wholly owned by a larger parent - can they still get more favourable terms?

  Each case would need to be assessed on its own merits. The involvement of a large parent company or group is likely to give any funder comfort and enable improved terms to be offered, even if the subsidiary is not wholly owned.

  Further Support

  We hope this article provides insightful information on group finance for UK-based companies. If you need any further support please get in touch with us on 03330 113622 and we will be pleased to assist you in confidence and without obligation.

  By Glenn Blackman