Funding Process for Business
Whatever market a business operates in and however many years it has been trading, if any, many come to the point of requiring a cash injection to achieve their long term aims. This then raises the following questions:
How much cash is required?
Who will be in control?
Will investor bring other synergies?
Will it be in the form of equity, debt or both?
If share capital what %?
If loan at what interest?
From a potential investor viewpoint when someone is asking for funds they look at:
Who they are?
What is their track record?
Can they turn the idea into reality?
What is the idea?
What is the market potential?
What is the target market share?
How much is being asked for?
What is the potential reward against the risk?
To answer most of these questions from both the Investor’s and Investee’s point of view it is not enough to have a whole lot of words. Numbers are the key to success in any investment journey. Humans speak many languages, but a company only speaks in one, the language of numbers. With numbers you can:
Demonstrate the historic track record, if available
Monetarise the targeted market share
Detail out resources required to achieve target
Calculate investment funds required
Monetarise potential gains over a given period
Quantify the risk/reward proposition
Demonstrate ability to turn idea into reality
So how do you produce a financial plan?
Step 1 Define what you are trying to achieve i.e. your goals
Step 2 Clarify where you are today
Step 3 Identify key decisions and when & where they lie on the journey to your goals
Step 4 Quantify your key assumptions
Step 5 Allow for the timing differences between payments and receipts (working capital)
Step 6 Define the “get out” point for any investor and/or for yourself
With these in place you can then model and flesh out your plan in detail to derive a 12 month plan with a further 2-4 years at either a monthly or annual level. This will then derive the initial funds required until the business is self-sustaining. At the end of the timeline the plan will have also calculated the likely value of the business which can then be used in the negotiations on the initial investment. As assumptions, by definition, are not actual outcomes, a well written model will have the flexibility to change these assumptions to test the risks involved i.e. it is able to derive the required “What If” options.
Would you like some assistance with your financial plan? Why not reach out to our team to have a further discussion?
