Posts Tagged ‘securing capital’
Securing Capital For Growth – Moving From Theory To Practice
February 14th, 2011
“Proof Of Concept Leads To Business Financing More Often And Much Faster Than Not”
Because we live in a fast paced, immediate need fulfillment society, there is the unrealistic expectation on the part of entrepreneurs and business owners that people with money are willing to finance our hopes and dreams and let us start living the good life faster than is realistically possible.
Start up capital is hard to raise for one very important reason…the request for business financing is based on theory not practice.
While every would be entrepreneur or serial entrepreneur is convinced that their latest idea or plan is sure to succeed, statistics related to business failures in start ups would prove otherwise.
As I mention to individuals that call me to help finance basically their business plans, debt financiers and equity investors are looking for those individuals with the good ideas, accompanied by the proof that they’ve figured out or learned the first thousand things required to make money in a given business pursuit.
The analogy I will typically provide is that most entrepreneurs or business owners with a great idea and solid market opportunity available have done a great job of learning the first hundred things that are important for them to make money in their chosen en devour. However, at that point in the evolutionary process of getting to market, they start asking for large sums of money to accelerate the process.
In most cases, people with money are not interested in funding those who have not been able to get further down the learning curve, closer to the knowing of the thousand things that are important unless its some kind of mind blowing surefire thing a ma jig.
In the early stages of developed, no matter how well the business plan is written and how thorough it identifies and addresses all significant risks to moving forward, its still all theory.
What I mean by theory is that it hasn’t been done yet.
Moving from theory to practical application where actual results are generated, measured, and shown to be profitable is the ultimate pathway to finding all the business financing you could possibly require.
In order to accomplish this, the entrepreneur or business owner needs to figure out what the smallest possible scale he or she can work at to achieve the desired result and how much money will be required to develop and implement this smaller scale model of the grand design.
This is going to be a much smaller amount of money to locate than the big picture funding most are looking for, and in the event that the mainstream market is still not interested in funding, the requirements may be small enough for bootstrapping and the recruitment of investors from the friends, family, and fools section of the market.
Once proof of concept and practical, measurable results are in hand, its going to be a lot easier to get someone to take you more seriously.
Of course this approach will likely mean slowing down the march to market domination and will put off the quest for larger development dollars until one or more economic cycles of the business model can be completed.
But by taking the long way around, you’re going to go through the learning process in much more depth and get closer to the thousand things you need to know.
Or, you can continue to aggressively look for overly aggressive money in the hope that you will be one of the lucky few with more ambition than practical proof of concept that will get the funding necessary to carry on.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingMeeting Lender Expectations
December 18th, 2010
“In Order To Secure Debt Financing, Make Sure You’re Able To Put Your Best Foot Forward”
In any business, there are basically three parts that need to be working in balance for the business to grow and prosper.
The three parts are Marketing/Sales, Operations/Administration, and Accounting/Finance.
For smaller businesses that are on the come, it can be hard at times to have all three areas firing on all cylinders.
The importance of this when it comes to securing debt financing can be significant as no matter how well you can present the business, its opportunities, and what you’ve been able to accomplish so far, a debt financing source or lender is going to want to be sure that everything is going to hold together as you move towards warp speed in your business plan.
Increasing size means more people, more transactions, more stuff to keep track of and manage. Without some amount of stability in each of the three areas, the brilliant up front presentation requesting growth capital can be quickly dismissed if a lender discovers that one or more of the key business areas is under developed or lagging behind the others.
And in many cases, the weakest link in the chain is the area of Finance.
Here’s a typical example.
A business has successfully got off the ground, been operating for a couple of years, made some profits, and is well positioned in the market to start taking greater chunks of market share from competitors with inferior business models or offerings. The only thing the business owner believes they need is more capital.
But when interested debt lenders start pealing back the covers, they discover that the score keeping system is a total mess and information tracking for management purposes is mostly done on scratch pads outside of the accounting system.
This is not an uncommon occurrence that typically is trivialized by the owner as their main focus is market and sales (which it should be) with a secondary focus on operations, and limited to no focus on finance.
But from a lender’s point of view, not maintaining an up to date bookkeeping system is a big deal, especially if you’re planning to double or triple the size of the business in a relatively short period of time. And its not just about not having the historical bookkeeping completed. It’s about the business not knowing exactly where its at all the time and flying a little bit blind. This type of unbalanced approach can lead to customer bad debts, loss of supplier credit, government arrears, cash flow shortages, debt covenant failures, and so on.
In most cases, one or two weeks of intensive work utilizing some outside resources can fix the problems and get the finance function up to an acceptable level to support the other areas of the business. And this is not just to satisfy a banker. Getting the finance and accounting systems in place and up to date are essential if the business ever intends to reach its goals.
Failure to meet the lender expectations in this regard is going to make it hard to secure business financing, especially lower cost forms of capital.
Being able to demonstrate the financial aspects of your business on command is expected. The sooner a business owner comes to this conclusion, the faster the business is going to be able to grow and easier it will become to secure the capital required.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingThinking Three Steps Ahead
October 26th, 2010
“Does The Debt or Equity Funding You Accept Today Help or Hurt You Manage The Business Tomorrow”
I have often written that business managers and owners tend to leave the process of acquiring capital to the last minute and end up scrambling in many cases to get some type of financing in place before more costs are incurred or an opportunity is lost or some other dark consequence of not getting things done on schedule.
Not only does this very common approach to business financing create less than desirable results in the short term, but it also can wreck havoc on future business opportunities.
Let me explain.
The process of financing a business and managing a balance sheet is a lot about thinking three steps ahead as you try to proactively predict how things will unfold in the coming years and capital the business will require to operate within your predicted or desired path. And future predictions are not always going to be about growth. Sometimes the look ahead is going to be more on the gray or even dark side as you realistically or conservatively see a storm coming ahead and make a plan to deal with it that will hopefully lead to your long term survival.
Regardless of how you see the future, there is cause and effect in the field of view that needs to be factored into how you cash flow and fund your business.
This is why the decision making process of today can be so critical to what predictably is going to come next. Business financing done in haste most times creates a financing structure that will not easily allow for future moves without creating cost. In some cases, the capital acquired today will be a death sentence to the business if the future unfolds in a direction that is in congruent with what has been accepted or arranged.
An example of this would be an obsession with the cheapest sources of money. These sources not only can take an excessively long time to get into place, but they also demand close to extreme security positions and very stringent operating requirements that may or may not be met by expected future events. While cheaper money is always preferred over the alternative, the business has to be able to meet the requirements of the money, or be faced with demand to repay at likely an inopportune moment in time. And even if the business owner can comply with the demands of the money source, is there any flexibility left to allow for what comes next which might just require more outside money?
The process of thinking three steps a head requires that the business owner starts early and never stops looking for and understanding the available sources of business financing that are relevant to what he or she is trying to accomplish. The more pressed someone is with respect to securing capital, the less likely any capital required will properly allow for future moves.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingNo Such Thing As Easy Money
October 1st, 2010
“When Looking For Business Financing, There Is No Such Thing As An Easy Deal, A Simple Process, Or a Certain Approach To Getting Money”
Ok, so perhaps this is a slight exaggeration as I probably can recall a few business financing deals I’ve worked on over the years that went fairly smoothly, got closed on time, and provided the business owner with what they were looking for without any grief.
I can also easily count these situations on one hand and have some fingers left over.
The process for securing capital, especially since the most recent recession is gotten harder to achieve in most cases, most of the time. Its not that everything can’t fall into place with a funding process, its just not likely to happen and you need to plan for some challenges, costs, and time.
The basic adage is to prepare for the worst and be pleasantly surprised when everything comes together without a hitch.
This may seem like very pessimistic, the glass is half full kind of thinking and it is. But in all my years of working in this business, there is virtually no such thing as an easy deal. Easy deals or easy flowing money falls into the 1% probability category slightly ahead of your odds for winning the lottery.
The take away message here is not that is all gloom and doom and that you’re not going to get the capital you require.
No, that’s definitely not what I’m saying.
What I continuously tell business owners is to get committed to the process as early on as possible and then stay invested in it as long as required and provide the resources and time necessary to increase the probability of a positive result.
In many cases, the business financing process is grossly over simplified and under estimated by entrepreneurs who would rather stick needles in their eyes than have to develop a detailed financial knowledge about any financing request they need to make. Money is a necessary evil that shouldn’t be that hard to come by, or so the thought process goes.
Unfortunately, this thought process eventually leads to failure in many cases in that money that gets secured tends to come from the path of least resistance which is typically not the most ideal form of funding available which can start the business into a death spiral it may never recover from as it continually takes on poorly suited forms of capital that will only reduce the probability of profitable results.
And when I say you need to commit to the “process”, the process is whatever is required and however long it takes to get the right match of money and opportunity.
If you say you don’t have the time for what’s required, then start the process earlier, get farther ahead of when capital is required, avoid being backed into a corner and forced to take what you can get.
Finding easy money that fits your requirements when you need it is always possible. But is it probable?
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingSecuring Capital Takes Time You Can’t Image
July 23rd, 2010
“Getting Deals Funded and Closed Can Be Way Harder and Take Way Longer Than You Expect”
When working through business financing scenarios where a business needs to secure capital for some reason, there are a few things that tend to be extremely common from one situation to another.
First, the business owner is in a rush or pressed for time to get financing in place. This can be due to a number of reasons, but the most common would be that the process was started too late or the business owner spent too much time trying to secure business financing from the wrong type of lender before realizing they were wasting valuable time.
But even when you find the right lender and provide a good solid package of information, the amount of time it takes to get money advanced to complete your deal can be considerably more than you are anticipating.
Take one of my recent projects. The borrower had an immediate financing requirement that needed to be completed and funded in a matter of days. The nature of the transaction was that it typically would take two to four weeks to complete.
Why would it take so long?
Because of the number of steps that needed to be completed by different people. This is always a function of time you can expect a deal to take.
If everyone involved in the process does everything required when required, the deal could potentially get completed in less than a week.
But the moon and stars don’t typically align like that and the reality is that everyone is working on a number of things at any one time so the probability of each task getting done in the least amount of time seldom works.
From a lenders point of view, they are going to estimate more time than what is possible as the last thing they want to do is stick their neck out on a certain amount of time and then get yelled at when everything doesn’t get completed by that date.
From the borrower’s view point, someone in a hurry cannot possibly see how the outlined steps will take so long to complete.
In the recent project I’m referring, during the first five days of trying to get the deal closed, there was failed wire transfer, an email system that went down, and a main frame printing system that when down.
Each unplanned event added more time to the process and in almost every business financing scenario I’ve ever been involved with, something from the unexpected happens. It can be things like sickness, holidays, long waiting lists, people new in position, the weather, someone having a bad day, and just about anything else that Murphy’s law can offer up.
The key point here is that a business owner has to try and build in as much buffer into the process as possible and even development contingency plans if the unplanned delays are excessive. Failure to factor in more time than what you think should be necessary can cause a deal to blow up in your face, a contract to be terminated, or more costs being incurred.
Click Here To Speak With Business Financing Specialist Brent Finlay
Business FinancingInaccurate Disclosure Kills Busines Financing Opportunities
February 4th, 2010
There is the temptation when applying for business financing to omit things that are negative and gloss over other things you personally don’t consider to be important.
The result is this semi-complete story of what you need financing for and the justification as to why it should be granted to you.
And while you could be well justified in not wanting to provide all available information, here are few things to consider when putting an application package together.
First, never purposely lie or exaggerate anything you put forward to a lender or investor. If you ever get caught in a lie, regardless of the size, the game at that point is typically over as the lender or investor may no long view you as credible.
Second, never hold back information that would be considered material to the business or the financing facility being requested. If something is material, then by definition it’s important and can cause an impact to other parties like providers of capital.
Third, provide what is requested as completely, accurately, and neatly as possible. You can make judgment calls as to whether or not you wish to provide certain items, but this is also one of the fastest ways to get declined. Remember that especially in the case of debt lenders, their financing requirements tend to be quite rigid. If you can’t provide what they ask, then they will just pass on the opportunity.
Fourth, proactively explain all negatives that are most likely to be detected during due diligence anyway. The best examples are negatives in business and personal credit reports. The first thing a debt lender will do after receiving an application for financing is pull the applicant’s credit profile. If there is no proactive explanation of any negative items that may appear, then the lender is left to draw their own conclusions.
Fifth, be conservative in your go forward estimates and have as much back up as possible to support your assumptions. Too many times the application is lost at the point of proforma financial statements that don’t reconcile or are too “pie in the sky” for the lender’s or investor’s liking.
Nothing is worse than to be 90% of the way through a business financing process where the finish line is in sight, only to be declined close to the end due to some non disclosure or inaccuracy that could have been dealt with in the application without impacting the financing decision.
Making assumptions of what you think is important or germane, versus what the capital provider wants to review, can be suicide to a deal. Providing near full disclosure, if at all possible, avoids this from being a problem.
And remember that even if you do manage to secure funding through what I’ll call creative disclosure, the longer you have the relationship with the lender or investor, the more likely the truth will be found out anyway.
If the capital provider has the ability to demand repayment, they likely will, potentially putting you into a major bind.
Recently I was working on a client’s financing request and had a business financing solution arranged twice, but got blinded sided both times when the lender’s due diligence turned up non and/or incorrect disclosure issues.
Not only was the whole process a big waste of time, but if full disclosure was provided from the start, completely different sources of financing would have been approached that were more relevant to the whole story.
Securing capital is all about the story. But nonfiction is preferred over the alternative.
Click Here To Speak With Me Directly About Business Financing
Business FinancingThe Right And The Wrong Way To Look For Money
January 31st, 2010
As I have mentioned many times previously, the process of seeking capital for a business is largely an unplanned event in that 1) it is assumed that the process for securing business financing will be easy, and 2) that it won’t take long.
When reality sets in, then there can be an all out panic to try and locate financing sources before time runs out on a particular deal. If this occurs, then the business owner or manager may start working with multiple lenders and multiple agents all trying to find money in time.
This would be the wrong approach for a number of reasons:
First, commercial business financing deals can be a lot of work, and if relevant lenders find out that everyone and his uncle is being asked for financing, some of the better options will immediately decline from the party as they are not interested in doing a whole bunch of work for a small chance of reward. There can be considerable due diligence that goes into a commercial deal as compared with buying a house or a car and as a result, market shopping is frowned upon by lenders.
Second, to get a deal done in a compressed period of time can require a great deal of attention and effort on the part of the borrower to get everything lined up for lenders, lawyers, accountants, insurance providers, appraisers, consultants, and so on. If a borrower’s efforts are diluted among various scenarios, the probability of success is going to go down.
Third, there are likely only a hand full of lender options that are even relevant to any particular deal. Critical time can be wasted on chasing the wrong options due to the business owners lack of understanding of who can provide what in the time required.
Lets look at the right way.
If you have a significant sized deal at stake and you’re under a time pressure, your best bet is to first go to your primary lender to see if they can provide what you need. If that isn’t possible, then you should spend your energy locating a suitable business financing specialist who can quickly zero in on the best available options for your particular deal at that particular point in time.
Lenders and investors are always changing their level of interest for different types of deals based on changes to their portfolio or the economy. A lender that was relevant to a certain type of deal in a certain location 6 months ago is not guaranteed to be interested in the same deal today.
Talk to a few different financing consultants to see which one can best address your needs and then pick one and only one to work with. Working with multiple consultants and brokers is just as bad as contacting all the lenders in the phone book yourself for the same reasons mentioned above.
After going over your options with a financing expert, pick a strategy and stick to it so that your efforts are not diluted by too many different lending or investing scenarios. Once chosen, manage the heck out of your best option and keep you fingers crossed. Many times success is in the details and providing all your efforts into a solid option can be the difference maker in getting financing in place in the time required.
Keep in mind that hunting for money with a rifle is usually more effective than a shot gun.
For more information, go to Brent Finlay’s guide to business financing.
Managing The Needs of Your Senior Lender
January 27th, 2010
If you’ve been in business for awhile and you have a sizable line of credit with a major bank, say for at least $1,000,000, you may have been going merrily along with your business without ever having any real issues with your banking facility.
Every year, your making a profit, meeting your banking covenants, and having a game of golf or two with your bank manager. If there are a few bumps in the road, they are typically handled without much problem and you feel pretty secure in your banking relationship.
This tends to be a pretty common scenario for businesses in operation for more than ten years and generating $5.0M plus in annual sales.
Now comes a long the worst recession since WWII.
In fact, its the first real recession in 20 years.
Banks have slowed down and in many cases stopped lending all together. Bank portfolios that are weighted in some of the harder hit sectors have taken a beating. As a business, banks are inwardly focused and taking care of their own business.
Its at times like these that business owners can develop a false sense of security with their banking relationship and even believe they have some influence or clout with the bank based on many years of paying for bank services.
But in times of recession, all bets are off. Every man for himself and all the rest of that jazz.
Senior lenders, almost without exception, provide business financing for working capital and equipment on a demand basis. We don’t think much about the demand loan terminology until its actually applied.
If a banks portfolio is going in the wrong direction and your portion of the balance sheet is viewed to be higher risk, then your senior lender may decide to demand repayment of your loans …or… provide additional security to lower their risk.
Sound familiar? In North America, banks have choked the money supply and asked governments to help them better manage their risk through guarantees or pledges of assets.
Talk about having you over a barrel. And they do.
So when your senior lender calls you up and says they need to improve their security position or they will be forced to reduce your line of credit or call your loans on demand, what choice do you have?
You can try to move to another Senior, but in the middle of a recession it may be very difficult if impossible to accomplish.
You can move to an asset based lender, which may very well be possible to achieve, but likely at higher rates.
You can see if they are bluffing and refuse to sign off on what they’re asking for.
Or you can cave into their demands and hope they don’t call everything anyway once they are in a stronger security position.
This can be scary times for many business owners, especially if you’re offside on any of your bank covenants, in which case, there will surely be requests for additional security, reductions in facilities, higher rates of borrowing, demands for repayment, or some combination of the above.
This is part of what comes with cheap money. Senior bank facilities are traditionally the lowest cost source of financing a business can have. Security can be based on assets like inventory that really don’t have any security value to the bank, but are still leveraged based on the strength of the overall business and the overall economy.
When times tighten up, like they are right now, senior lenders tend to hold their cards close to their vest and can be very unpredictable.
The best way not to draw their attention in recessionary times is to keep a low profile, and above all else, make sure you understand and meet your bank covenants.
And if they start talking about changes required with your banking facility, take them very seriously and weigh the pros and cons carefully before making any decisions.
Business FinancingBusiness Financing Is Primarily An Unplanned Event
January 16th, 2010
It drives me crazy and never fails to surprise me as to how business owners and managers approach securing business financing for their companies.
The thought process tends to leave the search for capital too long into the business planning process and when it’s finally begun the expectation is that it will be a relatively simple and straight forward process.
Some advise to consider would be starting the search for money sooner and even managing it into a path parallel to the business planning process its connected to. The reason for this approach is that locating and securing the right capital can many times prove to be the most difficult element of any potential project. Furthermore, as potential financing sources are uncovered, their related terms and conditions may require actual revisions to the business plan and the sooner this is known the more likely it can be allowed for in the planning process.
The standard assumption for not doing the above is that any financing source will be flexible enough to adapt the lender or investor program and criteria to suit the business.
In many, many, many cases, this assumption could not be more wrong.
The second problem business owners come across is assuming the process will be timely. I’ve personally worked on deals that took over a year to complete and dramatically delayed the business plans that were draw up. Business financing applications are not like applying for standardized things like a credit card, car, or even house. Each application is really unique in some way and therefore takes more time to evaluate.
Obviously requests for small amounts of capital, say under $250,000, can be more timely and predictable most of the time. But as the amount of business financing required increases, so does the degree of difficulty finding the financing source that wants to do the deal, and then actually securing the funds and getting them disbursed.
This is why I call the process of business financing an unplanned event. Its just supposed to happen on cue and doesn’t need to be planned for ahead of time. This could not be further from the truth.
And in all my years of working on financing projects, I’ve come to expect that there will be a strong sense of urgency when someone is looking for financing (due largely to the fact that s been left too late) and that the process is going to be difficult to manage.
While it doesn’t have to be that way, it almost always is.
Perhaps the problem stems from the lack of basic financing education we get in school or because the process of business financing tends to be infrequently required, so there’s no real need to learn how to properly go about it. When the need exists, just scramble through it somehow and move on (or something like that).
For companies that are on a growth path and plan to be there for a long time, there is definite value in gaining a greater understanding of how to best approach locating and securing the capital they need to effectively manage their growth.
Time has proven over and over again that business financing doesn’t have to be planned, but it sure can help if it is.
Business FinancingThe Business Financing Benefits Of Year End Financial Statements
January 11th, 2010
While not everyone has a December 31st year end, most small and medium businesses do, and with the middle of January quickly approaching, here are some things to consider with respect to business financing and year end financial statement preparation.
Keep in mind that this advise applies to any fiscal year end.
Whether we like it or not, the process to secure capital is largely driven by the historical financial statements of the business. And financial statements that are less than 6 months old have more lending value than those greater than 6 months since the end of the last completed fiscal period.
And while the required filing of corporate income tax and the related financial statements is typically not required until 6 months after the year end is completed, there may be significant reason to get this completed sooner. Here are two reasons in particular to consider. You need incremental financing for your business or you’re planning on requiring more business financing in the near future.
The first thing to consider is the profitability of the income statement and the leverage of the balance sheet. If the income statement shows profit capable of servicing incremental debt and the balance sheet has enough equity to support additional debt acquisition, the you will have a powerful asset to assist with securing capital once the financial statements are completed.
Here’s some other things to consider.
If you’re applying for financing after year end but before the year end financial statements are completed, then its highly likely that a lending facility will not be put into place until the accountant gets the statements finalized and filed.
If you plan to wait until the financial statements are completed 6 month after the year end before applying, remember that the financial statements are now effectively 6 months old. If the lender’s assessment process takes some time to complete, the lender may turn around and ask you to get a 6 month interim financial statement completed, creating what could be a significant delay to your plans while increasing your accounting costs.
Even if you have no immediate need for incremental financing, you may want to consider how to best utilize a strong financial performance of the year past in terms of business finance and the relate costs.
For one example, you could utilize a strong year end to help leverage better terms at your bank by shopping around to the competition. Rarely will you have better leverage to secure better rates and terms that when you have strong financial statements. And you may even be surprised at the competitive offers that come back which may prompt you to make a move. With out freshly prepared financial statements from a strong year of operating performance, this possibility is going to be a lot less likely.
Another situation to consider is leveraging a set of strong financial statements to increase your credit limits or add credit lines. You would be basically trying to secure financing you don’t need or are not planning to use but may end up using if you’re having an off year. For a seasonal business, this scenario can play out more often than not over a long enough period of time.
I had a client with a seasonal business that was highly profitable and dependent on winter weather. They had great credit and had very well established short term and long term financing with a chartered bank. Then one year there wasn’t severe enough winter weather for their business to operate (first time in over 20 years of business history). At that moment of cash flow crisis, it was not possible to borrower more money and everything that was built up over the years was put in jeopordy.
You’d think that a bank or any lending partner could see past this anomaly in financial performance. In most cases they can’t or won’t, so its up to you to create your contingency ahead of time and one way to do so is by increasing your available credit when the opportunity presents itself.
On the flip side, if the financial statements are not going to be profitable, there is likely no rush in getting them completed sooner than later. And if the bank requires copies, you may want to wait as long as you can so that the business results can improve prior to providing the historical results.
Business Financing