When the piggy bank is running low, it’s time for action, not worry.
Are you ready to raise new capital?
So, you think you are ready to raise capital. Why? Your business is growing, you need more working capital to fund growing inventory and debtors, you need some new equipment, along with more employees to handle the increasing volume of sales you propose to create.
You may have identified new market opportunities and need to scale your business in a way that will more efficiently cope with the growth. This is a good position to be in, but do your stakeholders agree with what is going on?
More than likely, there will be some who have their doubts, even if you want to simply raise your credit card limit by $10,000. Outside capital, after all, can impact the business in many ways and can and should cause people to be asking questions like:
- Do we really need this money to grow?
- Do you have enough collateral to support a loan?
- How exactly are you planning to use the extra capital?
- Is the current working capital being used well?
- Can’t you sell off some of that old stuff you have laying around?
- How will this capital dilute each person’s equity in the business?
- Why can’t we drive growth without new capital?
- Is the timing right, is the market expanding or contracting?
- How will it impact on our exit strategy, is it worth the risk?
- Will it affect the value of the business with extra debt?
- Is it time to introduce a new shareholder?
- How will we repay the debt?
- Are you prepared to sign a personal guarantee?
If you’ve done your homework, you should be able to address all their concerns with a very clear and compelling analysis, in words they can understand, and quickly dispel any fears and squash any opposition. If you haven’t, you may as well have to take the rejection and go back to the drawing board.
Have you done your homework?
In almost all cases you will need a compelling reason to saddle the business with additional debt. The last thing anyone wants to hear is that you don’t have one. This will immediately set off a chain reaction of doubt and mistrust. Most people will support your business’s fundraising efforts if they can clearly see the purpose, value and the impact the new capital will have.
Clearly, identify the opportunities for your business. New capital can drive your business’s growth, but only if the market opportunity you’re targeting justifies the investment. You will need to across such issues as:
- How much capital you actually need, including a margin for error and how the new capital will be utilised as well as outlining any time frames for raising the capital and when it would be needed.
- The frustrations, problems, wants and needs of the proposed market segments and how the new capital will help you to better align your products and services with them and leverage your cash flow, profit, growth and sustainability.
- Perform a market assessment, showing the size of your target market and each market segment you propose to address.
- The competitive landscape and how the new capital will put you in a stronger position to compete more profitably.
- Do a comparison to determine the potential growth and profitability of the business with and without extra funding.
- Show exactly how much new capital you need and exactly how it will be utilised. Be sure you have exhausted all avenues of improving your liquidity such as disposal of excess inventory, debtors are within acceptable limits and all surplus plant has been disposed of.
- Calculate the projected return on the additional capital and how it will leverage the overall return on investment in the business Investment. If a new round of capital raising won’t positively impact existing investor’s returns, you won’t have much success convincing them to agree with you.
- What will be the terms and conditions of the proposed capital raising and what security will you need to be offering for the additional capital?
If you have done your homework and you can deliver a clear and compelling argument for raising capital, you shouldn’t need to do much convincing. Your presentation should speak for itself and others, including the proposed funders, will have a hard time saying no to your application.
Is your business ‘Investor Ready’?
You may not think any of the following is important but your investors will. Investor Ready is about building a real business, getting it into the ‘fair dinkum’ department, real products and real management in place along with all the necessary facilities and equipment needed to get the job done.
Luck favours the prepared business and this does not happen overnight. It will take many hours over many months. Of course, it will take longer if you don’t have access to expertise and your systems are not in place.
This can be a simple process or it can become very involved as a business becomes bigger. To be successful the process often requires impartial external assistance from a facilitator, in putting it all together.
Marshal your resources in such a way that they are working in unison which can easily be seen by the owner and communicated to potential finance providers and strategic partners and alliances.
- A Business Model that works.
- A Working Business Plan and Budget in place.
- Up to date financial figures and reporting.
- Valuations of key assets which are reasonably current.
- A mature management structure in place.
- External advisors in place.
- An Owner’s Operations Manual, or Policies and Procedures in place.
- Clear workflow processes in place and working.
- A market growth strategy.
- Strong growth and/or growth potential.
- The right attitude to new ideas and change.
- Intellectual Property is documented and protected.
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For some, the thought of talking about raising capital to their family, management team or their board of directors can cause many sleepless nights. Will they disagree, will someone stand in the way, who will say no way and who will not understand the reasons?
For many raising capital is a thankless task, but someone has to do it. If you feel ill-equipped to raise capital, or need help to do so, engage a Finance Broker in negotiating the best deal for your requirements.
One of the most important things a business needs to have is sufficient working capital, as without it the business is at risk and all your investment and hard work could go down the drain. Don’t wait until you are down to your last dollar.