What Contingency Plans Do You Have In Place To Protect Your Business And Cash Flow?
No matter how good things are going, something can go wrong that sends you side ways and without solid contingency plans in place, your cash flow and business could completely disappear.
Now contingency planning is for stages of stability and growth. If you’re cash flow is already in trouble or going to be in trouble very soon, then its not contingency planning, its crisis management.
By this definition, you may ask why you need to even bother going any contingency planning. If everything is going well and perhaps has been good for a long time, why dedicate time to this activity.
Here’s a real world example.
Customer imports a product and repackages it under different consumer brands, has been profitable for 20+ years, does over $10.0M a year.
Great cash flow model where suppliers provide 90 day terms on product imports and receivables are collected in 60 days. Operating costs covered by a long standing line of credit.
Everything runs like a well oiled machine.
Then the recession hits. And all the suppliers cut back their terms from 90 days to 30 days.
Big problem. Totally unforeseen. Right before prime time of this seasonal business. If it can’t be corrected quickly, the business is all of a sudden in big trouble.
The end of this story was that the business did find a way to stabilize the ship, but there was no contingency plan to draw from and as a result the business was not only in distress, but on the verge of losing customers. The problem was solved through pure crisis management, which can work, but is unpredictable and typically more costly than drawing from a contingency plan designed for a cash flow shortage.
The big problem with me preaching contingency planning is that I’m preaching prevention, not cure. Its like telling you to back up your computer everyday or buy life insurance or brush your teeth before going to bed.
And as a result, I’d say 90%+ of businesses don’t have any type of meaningful cash flow contingency plan.
Perhaps that would change once business owners and managers understood the risk they aren’t managing. Maybe.
In reality, most business financing is crisis managed or what I like to call unplanned events.
I’m going to talk about cash flow contingency risk assessment and prevention in future posts. For now, I’d just suggest that you take a quick look around your cash flow and see if there is anything that can be flagged as a high risk to your business. This is definitely a worth while exercise and should be done at least a couple times a year.
Before Seeing Your Banker About Business Acquisition Financing, Perhaps You Should First Talk To the Vendor
More and more business acquisition financing is provided by the actual vendor or seller, not just your banker. And in many cases, bankers will not even entertain providing acquisition financing unless the vendor is contributing some amount of financing as well.
This is especially true with purchasing a small business where a good portion of the sale price is tied up in Goodwill. Most lenders will not finance 100% of the goodwill. Actually, most lenders won’t finance any goodwill without some amount of additional security, guarantee, or surety from the buyer.
The lenders logic is that if the vendor is so certain that the value for goodwill in the purchase price is valid, then they should have no problem providing the financing by basically deferring the portion of the proceeds earmarked to goodwill until an agreed upon time in the future.
There are a couple of other reasons why vendor financing is more common for acquisition financing than you may think.
First, any purchase and sale agreement I’ve ever seen always has some form of recourse present to protect the buyer against mispresentations of the seller and vise versa. By having the vendor provide some amount of financing towards the purchase, there is effectively a recourse fund in place which further protects both the buyer and any potential lender that also gets involved.
Second, by having an active stake in the business being sold in the form of a vendor loan , the vendor is highly motivated to provide a seamless transition to the new buyer as well as ongoing support if required.
Many times, the vendor will take the money and run after the completion of sale and payment of all the proceeds, leaving the buyer to deal with any unknowns or transitional problems that might arise. And depending on whose statistics you subscribe to, one of the top reasons for the failure of acquired businesses is due to poor ownership and management transition.
Vendors tend to not want to provide financing if they don’t have to, which only makes sense. However, failure to be open to vendor financing can also leave businesses unsold for several years as potential buyers are not able to secure enough lender financing without the vendor being involved.
Forecasting Business Cash Flow And Income Has A Lot To Do With Both Your Experience and Intuition
Yes, cash flow and income forecasting can be a pretty mechanical process as all the numbers have to be entered and tabulated and assessed. But when you’re looking into the future, the numbers also have to be projected, guessed at, and pulled out of the air to some extent.
That’s where both your experience and intuition comes into play and it will amaze you how both improve your accuracy over time.
When I was managing an annual cash flow that was well in excess of half a billion dollars annually, I got pretty good at estimating where the ship was going to dock and how we were going to hit “the number” decreed from the ivory tower by people so removed from what was going on they may have been on another planet, or at least it seemed like that some times.
I had a large staff, reports, and systems out the wazoo, so you would think this was all highly mechanical, which in many ways it was.
But when it came down to determining which actions to take in the next 30 -60-90 days to make the overall cash flow and income projections work, it always came down to my estimates and guesses of how certain items, both inflows and outflows would play out. Basically my estimates or key assumptions of how things would play out in real time.
And in the real world, you will always have to guess because there’s always unknowns, curveballs, and goof ups to deal with.
So why go to the trouble of creating cash flow and income forecasts if you’re just dreaming it up anyway?
You do it because through the course of continually going through the exercise of reviewing everything that matters to your targeted outcome and summarizing each component down to time and dollars, you develop the ability to accurately estimate how everything will unfold.
Intuition is nothing more than your minds ability to draw on lots of self absorbed data and apply it to a repetitive ritual that generates a realistic result of what is yet to occur.
The more you feed your brain with the key measurements of the business and the more you go through the assessment cycle, the more accurate your guess work will become.
And in many ways, this is the secret of some of the world’s most successful people who always seem to make the right decision most of the time or when it matters most. They have spent, in many cases decades, feeding their own super computer all sorts of relevant data about their business, competitors, the market, the economy, and anything else that could have an impact on what they do.
When you’re field of vision is wider than your competitors, when you can instantly see and assimilate relevant information into the right decision most of the time, then you have developed superior intuition. And by acknowledging this to yourself and utilizing it to your benefit, you are practicing both art and science to achieve a greater outcome.
Back in the corporate world, there were only four days in the year that meant anything… the end of each fiscal quarter. And everything that took place between those dates was to achieve the quarterly target that lay just ahead.
People used to ask me what it was like to come up with the plan to get to the number and then manage to it. Because everything was such a moving target, moving at real world speed, I would say it was like trying to throw a brick through the open window of a speeding car and having it go right through the car without hitting the driver as it went out the other side.
But every quarter, I hit the number. I can’t say it got a whole lot easier, but as time when on, I made better plans to get to the results, as more and more things came into my field of view.
As a business owner or manager, you may view forecasting as a waste of time or a use of time you don’t have. But you need to find the time to work it into the mix for by so doing, you will greatly expand your intuition and become much more accurate in your decision making without even realizing why.
You don’t necessarily have to do it all yourself, but being involved in the process can create a powerful benefit to you that will leave your competition scratching their heads when you always seem to be one step ahead of them.
Why Is The Business Exit Strategy So Often Overlooked?
If you're like most business owners, you or may not have thought about your eventual business exit strategy. Lets look at why this is a very common issue with business owners and why it should be given more time and attention. The underlying goals of any for profit business is to generate cash flow, build assets, and create a profitable exit plan from the business some time into the future.
While the these goals are clear, the exit related goals do not get a great of attention until the owner is getting near retirement age or after some event causes the owner to need to exit. The result tends to be a suboptimal ending in terms of money actually realized from selling their business interests.
Here are the main reasons (from my observations and discussions with business owners) for a lack of business exit planning and the resulting disappointing financial returns.
1. Business owners do not see a connection between what they're concentrating on in the business today and their eventual exit. This is a highly flawed way of thinking as the present and future are closely linked in a number of ways. The actions of today, will impact the potential of any future exit. If the goal is to build optimal wealth, then all activities need to be ultimately geared towards increasing the value of the business enterprise, which effectively is to increase the value of the business exit. If the present actions are eroding the potential future exit value, then they should be corrected in order to maximize overall wealth of the owners.
2. Business owners assume that the process of exiting from their business will be quite straight forward and easy to navigate when the time comes. Again, in most cases this can be a radically incorrect assumption that can have a disastrous impact on the business owner's retirement fund. The reality is that business exits can be hard to manage and in many cased they take way longer than expected to complete and the profit realized is far less than expected.
3. Business owners don't want to deal with the end of their business ownership, so its easier to just ignore the whole 'process and wait until they're forced to deal with it. This holds true for many individuals that started a business from scratch and operated it for a considerable length of time.
4. Another misguided point of view many owners have regarding their eventual business exit is that there will actually be a buyer ready to buy at the exact time the owner wants to sell for the price the owner wants to sell for. This type of thinking can lead to very disappointing results. In reality, a business owner should always be ready to exit and always be directing their business to achieve an optimal future exit, regardless of when it actually takes place. If a buyer is looking for your type of business right now and is prepared to pay a premium for a business in an optimized and sale-able position, then a business that is always ready to exit stands to profit handsomely. While this particular circumstance may never occur, it also prepares the business for immediate exit if other circumstances present themselves, either personally or professionally.
The most common unplanned circumstance I can think of here is the sudden passing of the owner or a death in the owner's family where the owner does not want to continue with his or her business commitments on a day to day basis. If the owner is always ready to exit, then this or any other unforeseen circumstance will reduce the potential of a massive discount in sales proceeds caused by a sudden unplanned business exit. If you want to get the most cash out of your business exit, then start building one into your planning, because you never know what the future holds.
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Here Are The Most Important Elements Of Business Cash Flow Management
Let me outline the exact areas you need to focus on when performing cash flow management in your business.
But before we do that, just remember that cash flow management is one of the three primary business finance pillars all businesses focus on to some degree to be successful. The first pillar is securing capital, the second is cash flow management, and the third is cashing out on exit.
Back to cash flow.
I’m sure you’ve heard it a million times that cash flow is the key to any business. Nothing new there. But, what goes into managing a businesses cash flow and how do you make sure you’re focusing in on what’s important?
First, lets define this further. I define cash flow management as anything that has to do with money in your business including who its owed to, who its owed from, money spent on assets, money given to charities, paid in taxes, and on and on.
Cash flow management must have an all encompassing discipline to it or its likely going to be a waste of time. This is the first key element that you need to consider.
Too often, business owners track certain inflows and outflows and ignore others viewing them as not material or insignificant, or perhaps not wanting to admit that they are significant. When things are going well, a certain amount of overlooked items doesn’t really matter, but when things are not going well in the business, even a small amount of unaccounted for expenditures can become painful when it comes time to pay the rest of the bills.
The second key element is developing a cash flow management tool, even if its on a spreadsheet, to keep track of all inflows and outflows. This is effectively a dashboard into the business, equating everything into time and dollars so that you can proactively manage the business operations. Even when people go through the effort of building out a cashflow template, many still make these two very serious mistakes.
First, they allow too much time between reporting intervals. If you have a spreadsheet with inflows and outflows, you will typically have columns for the period of time. If you’re cash flow is tight, the reporting period needs to be shorter, like a week. There can be too much variability over the course of a month for this interval to be accurate to you in tight cash flow situations.
Second, they don’t forecast far enough ahead. At a minimum, especially if you are working with longer sales cycles or in a period of growth or decline, you should be forecasting at least 3 months ahead or even longer. This helps to see trouble on the horizon and gives you time to proactively deal with a projected issue while staying out of panic mode.
The third key element is to assign one owner of the cash flow management process and make it a requirement that the cash flow gets updated at least once a week. By having one person at the controls, the information will be more accurate and you also have someone, even if its yourself, to hold 100% accountable. Problems usually start when there are too many cooks sporadically updating information and making assumptions as to what someone else has done.
The fourth key element of cash flow management is to be ultra conservative in your projections of the future months. Expect income to come in slower and more expenses to appear than planned. This creates an internal buffer for when things go wrong, which they always do.
The fifth key element is to assign time and money to everything that happens in your business so you always have a solid picture of where you’re at today and what the near future looks like. Cash flow management is also part measurement in that any project you have or take on, should have precise cost and revenue projections and time lines, which all gets filtered into the master cash flow and your decision making process. Before a project can be approved, are there funds available in the time required? What is the expected payback period? When the results of a project or contract come back, did they meet or exceed the expectation, and if they did not, how are we going to deal with the cash short fall?
If comes back to the old adage, if you can’t measure it, don’t do it and everything needs to be funneled back into your cash flow management system to effectively be measured.
Ever since you were old enough to watch TV, you’ve been exposed to massive branding campaigns by Lenders for personal loans and financing, and business loans and financing.
The primary brainwashing we all receive is that your banker is your friend and that if you need a loan, come in and see him and he’ll help you out.
Right?
Its a fantastic marketing strategy driven by billions of dollars in advertising whereby we all have the major banks in our cities, regions, and countries branded into our brains.
The offshoot is that the major banks draw everyone into their marketing funnel and they keep the ones they want, which for business financing would roughly be 10% or less of those that apply.
Why so low?
Because major banks are low risk lenders that are looking for the low risk customers only.
They just don’t tell us that.
Now there are hundreds of thousands of lenders in the world outside of major banks and they do much the same thing, albeit on a smaller scale.
But the message is pretty much the same … Come and see us and we’ll help you out. Or, if we see lots of people, we’ll be able to pick out the ones we’re looking for.
Basically, the general population is treated pretty much like cattle when it comes to business or personal financing… we’re driven in one direction and then redirected in another.
Why?
There are a number of reasons.
First, in general, our society has a very low finance I.Q. due primarily to the fact that there is virtually no basic finance related education, so lenders would rather say they can help everyone than risk sending out a confusing message of what they really want in what I would call meaningful detail.
Second, a lender portfolio can be quite complex to manage and ever changing as the overall market place changes which causes their target to change. So no lender wants to say this is what they’re looking for today, and then potentially need to change it tomorrow. Its better to keep things vague. So instead, they just keep rolling out the same “come on in, we can help anyone” message.
Third, Lenders are opportunists just like the rest of the world. During the latest sub prime market fiasco, Major Banks cut back and in many cases stopped lending money, crippling the money supply. They used the crisis to put pressure on the government to give them payouts and concessions to strengthen their balance sheets, otherwise the lack of available capital would further worsen the recession.
Asset based lenders did the same thing. Because “A” Banks or Big Bank were pulling out of the market, more expensive asset based lenders were getting better qualify deals. The smart ones were making a fortune taking on lower risk deals without lowering their fees. But this also left a funding gap in the “B” and “C” Markets as its becomes a domino effect from the top down.
So keeping it vague, has always been the way to go. And as a result, it can drive you around the bend trying to figure out exactly who can help you at any given point in time… who is currently relevant to your specific financing requirements.
So, what can you do to find the right source at the right time?
1. Be realistic in the sense that no matter how much a lender may flip flop on their client selection, major banks, for example, are always going to be low risk lenders that are more focused on balance sheets will low leverage than anything else. If you don’t fit that basic description, don’t apply. Each category of lender has a basic profile that they won’t stray too far from, no matter what they tell you.
2. Consider utilizing the services of a financing consultant/specialist (not just a broker … big difference). This is someone who has their ear to the ground and is staying on top of the twists and turns in the market.
3. Instead of blindly applying to lenders according to the way we’ve been brainwashed, start qualifying them yourself. Remember that you’re the customer and you’re time is worth something too. So instead of patiently going along with some of their long and drawn out application and interview processes, start by asking them questions related to what you’re trying to do and focus your time one the ones that give you the straightest, most direct, and most committed answers.
Its still going to be a bit of a crap shoot, but still better than just showing up and expecting anyone to be able to help you, despite what they tell you in their latest commercial.
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Debt Financing Comes With An Obligation to Pay
Entrepreneurs tend to be a passionate lot, which is why many of them end up becoming successful, but this can also work against them with respect to debt financing.
The other side of the coin that comes with this passion is the blind belief that they are just one more mile away from achieving their goals, so do whatever it takes to get there.
Too much of what I see online regarding business financing is about how to manipulate the system or application process to get financing of some sort, whether it be credit cards, lines of credit, term loans, etc. Lenders feed this somewhat through the way access to debt is so causally portrayed in their marketing.
And in many cases, at least in the initial going, people can be quite successful securing significant amounts of debt based on a decent credit score and close attention to the application process.
I guess if you’re able to strategically get your hands on this type of debt financing and constructively apply it and profit from it, then good on you.
But when you take on large sums of mostly unsecured debt financing in the form of credit cards and lines of credit and personal loans, you are also putting a gun to your head to make things happen quickly. If results don’t materialize, your finances can hit the skids hard in a number of ways.
First, the debt is going to carry an interest rate, and in many cases, a high one. Almost immediate cash flow will be required to service the costs of debt.
Second, high ongoing utilization of debt will significantly reduce your credit score, making it next to impossible to borrow anything further.
Third, while some of the debt may be in the form of business credit, its likely to still have you personally liable for the balance owing. Incorporation does not protect you from this debt in many cases.
Fourth, if you are more than 30 days late on a credit card payment, you will get a severe reduction in your credit score and more than one of these can have a damaging impact that can last years.
Fifth, this type of debt financing is usually all demand written meaning that the lender can ask for their money back at any time for any reason. So even if you feel you’re on top of things, everything can do sideways in a hurry without any warning.
Sixth, if you fail to pay back the debt, your credit is shot. If you have to go as far as a consumer proposal or bankruptcy to get out of the mess, then we’re talking up to 10 years to rebuild your credit, which is impacting more and more aspects of our daily lives.
Did you know that many companies now want to check your credit before making a hiring decision. Why? Because many of them think that a good credit profile is an indication of character. Same can be true of other things you may apply for over the course of your life.
The value of good credit is growing and needs to be protected.
My point is that sometimes debt financing may be too easy to come by, or someone clever figures out how to “game” the system enough that they get access to more business financing capital than they can actually handle.
And because everyone is always in such a rush, they don’t always stop and think about the potential downside of what they’re doing.
Because business financing for small businesses, especially start ups, is hard to come by, many entrepreneurs turn to personally secured credit cards and lines of credit to fund their business ventures. Many of the same individuals also wish they had never taken this path.
For the pure type A entrepreneur, going bankrupt is a temporary set back and they will continue to roll the dice until they get the success they desire, regardless of how much of other peoples money they lose along the way.
However, for most business owners that fall into a debt financing hell they can’t get out of, the resulting fallout can be not only financially devastating for a long period of time, but emotionally devastating as well.
So, be careful what you wish for. Only take money you are confident you can pay back and make sure that whatever capital you secure has repayment terms in keeping with the road you’re going down. Yes, there is always a risk, but if you’re aware of the risk and take it into account before acquiring debt financing, then you’re practicing very responsible and sound financial management.
If things don’t work out, always make sure you can fight another day.
In the end, you’ll sleep a lot better, at least most of you will.
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When seeking any type of business financing for any sized business, small or large, there are four and only four uses or applications of capital. I’m going to go over each of them and why this is important to know and understand.
First of all, why is this at all important? Identifying the exact use of capital creates greater relevance in the capital procurement process.
OK, I’ll speak English. Locating suitable capital funds, either debt financing (business loans), equity financing(investor capital), or a combination of the two, will depend to some degree on how the funds will be applied in your business.
Lenders and investors can be very specific in deals they will seriously consider funding and one of their key criteria will be how the funds will be applied.
Certain applications of funds will completely remove certain lenders and investors from the mix. By understanding this at the outset, you can create greater relevance in your search to secure capital by screening out the sources of money that will automatically not be interested in your deal.
This doesn’t mean the deal is good or bad, its just not going to be relevant to certain sources of business financing. So you can save yourself a lot of time and aggravation focusing on relevant sources. There are of course other criteria that helps determine relevance, but for today let’s stick with use of funds.
So what are the 4 uses of debt financing and/or equity financing?
– Start Up. The start up of a new business venture.
– Acquisition. The acquisition of an existing going concern business.
– Expansion. The Expansion of the assets of an existing business for the purposes of growth.
– Debt Consolidation/Reorganization. The repackaging of existing and potentially new debt into a modified or new debt instrument or instruments. This predominately relates to businesses in some distress or downturn that need to either inject more capital into the business to cover losses or move short term debt to a longer term debt instrument to improve the balance sheet and security position of lenders.
Within each of these uses, there are even more specific sub uses such as:
– working capital to finance day to day operations
– short term capital to purchase and add value to inventory
– short term capital to finance accounts receivable
– longer term capital to acquire other tangible assets like equipment, buildings, and land.
– capital to acquire intangible assets
If you are seeking business financing for a start up venture, there are many sources of capital that don’t fund start ups. Identify them, and don’t waste your time asking them for money.
If you’re looking to acquire an existing business, don’t seek funds from someone providing trade credit related to working capital type assets only.
As I alluded to earlier, there are other twists to this as well as certain lenders and/ or investors will consider expansion funding, but have other criteria to determine if the deal is relevant to them (amount of funding, industry, debt to equity ratio of the balance sheet, debt service coverage, assets to be acquired, security ratio, etc.)
Each lender will have their own criteria set for each application of funds they will seriously consider. I say seriously consider because most lenders state at the outset they will look at virtually any deal to maximize their marketing efforts, but in reality, they all have a pretty narrow focus.
That’s why its important to understand how to accurately describe the business financing you seek and then qualify the universe of funding sources so that you’re only spending time with a relevant list.
But more in depth lender qualifying is a topic for another day. Stay tuned.
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Several times each week, I talk to small business owners who are seeking capital for their new or existing business and several times I have a very similar conversation with each of them that I thought I’d share today.
At the beginning of the conversation, I always ask the same two questions: How much money are you looking for? what’s the purpose of the funds?
I would say that at least 75% of the time, I have to re-ask these two questions two or three times before they’re answered. Most people think that telling me a long drawn out story of what they want to do and how they came to do it will be more important than answering these two questions.
What tends to come out after a few minutes is that the individual is hunting for what I call stupid money. You know, the kind that is prepared to write you a check on a very thin and likely non existent business plan where the lender is taking all or close to all of the financial risk.
Example. Someone has a great idea for a tennis equipment store. They have picked out a location and now need $300,000 for start up costs, working capital, and inventory. They have poor credit, personal debt, zero net worth, and no capital to contribute to the venture.
Is it possible that this individual could secure small business financing of some sort? Yes.
Is it probable? No.
That’s the great thing about the money business, virtually anything is possible, and I’ve seen enough to know first hand. After getting off the phone with me, this would be entrepreneur could go to the coffee shop, strike up a conversation with someone about his or her golf shop idea, and leave with a check in hand for the capital sought. Is is possible? Absolutely. Is it likely to occur? The odds would likely be lower than playing the lotto.
That’s why I’m always careful to not generalize about small business financing, as there is an infinite sea of money out there and strange things happen all the time.
But lets also get real. Just because its possible, doesn’t mean your new business financing strategy is to start going to coffee shops.
For the most part (can never generalize), money has a basic intelligence. If intelligence is not applied, the source of money will disappear very quickly based on making bad decisions.
People supply money to business ventures for a return. If you can show them a path to the return they seek within the level of risk they’re prepared to take, then eventually, you will find a source of capital for your small business financing requirements.
And here’s my tip of the day on this subject: You must have something to leverage and something to lose in order to have a realistic probability of getting business financing, whether it be for a new venture or existing business.
Something to leverage for low risk credit is your credit score, personal net worth, external cash flow, third party guarantee. Something to leverage for higher levels of credit risk would also include things like asset security, established cash flow, signed purchase orders from reputable companies, patents, intellectual property, contracts, etc. Remember also that something to leverage has to have a value to the source of money or there is no leverage.
Something to lose is at the very least the capital that you directly invest into the venture. 100% financing of anything is quite rare unless you’re taking about residential real estate and look what problems that has caused in the markets over time. Personal guarantees and corporate guarantees would also fall in this category if there was enough net worth to make them meaningful.
As the amount of leverage and borrower risk increases, so does the probability of securing capital.
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The question of how to secure capital for your business is commonly asked and pondered by most small and medium sized business owners and managers at one time or another.
When you search the internet for the answer, you tend to get the same lame regurgitation of things like new businesses should look to friends, family, and fools for capital; existing businesses should look to banks; and that you need to consider debt financing versus equity financing that gets into the whole venture capital versus angel investor rhetoric.
Wow. Really revolutionary and informative information. Some even go so far as to say these are secrets if you can believe it.
Now I’m not implying that these various terms I just threw out don’t need to be explained or are not important. No sir/madam. I’m merely saying that all these terms with some amount of abbreviated explanation are thrown at you like a bucket of water in some weak attempt to answer the question.
Perhaps its because the generic answer set I’ve outlined is pretty basic and safe and even friendly.
But useful?
Instead of starting at the beginning, lets start at the end. A bad ending. Depending on whose stats you read, over 50% of businesses will fail, fold, go kaput in less than 5 years of existence. Whether its 43.7% or 71.2% that fail in 5 years doesn’t really matter. The point here is that its a lot and its alarmingly high.
So, why is it so high and what that got to do with securing capital? Answer, it has everything to do with securing capital.
The internet for one is awash with people looking for money to finance their business ventures, either start up or existing, and most of the solutions that they come across are geared towards lending them money based on nothing to do with their business.
Business financing in large part, is not based on business. Its based on personal credit, personal net worth, liquidatable (new word) assets, third party guarantees, government grants and guarantees, etc. This applies not just for start ups, but for existing businesses as well.
The point (yes I do have a point) here is that if you try hard enough, you can probably find someone to give you some money for what you’re trying to accomplish that you say requires capital.
But your ability to be successful is dependent on 1) having a tested business model; 2) having a tested marketing approach and position; 3) having enough necessary experience, or access to the necessary experience for the venture, and finally 4) accurately estimating the capital required to become cash flow positive (business can generate enough cash to pay bills and generate a return on the capital you secured) including a substantial contingency plan for all the things that may go wrong along the way.
If you don’t complete the above 4 points, my first question to you would be, how do you know how much capital you really need? My second question would be, if you don’t secure capital sufficient to complete whatever you’re starting (your estimate was out and now you’re short), what are you going to do?
So how to secure capital for your business starts with how much capital do you need and is that much capital going to be able to generate a return based on your plan of attack.
In most business failures, if they did the exercise first (honestly and objectively at the very beginning), they wouldn’t need to secure capital because they’d find so many holes in their own logic and planning that they’d stop and revise things until they made more sense.
I’m not saying planning is perfect, because its not. And no amount of basic planning and analysis will stop business failure. But I’m telling you, its not going to be anywhere near 50% either.
The final point today is that when you make the effort and figure out what business approach should work (and I do say should as planning is imperfect) and clearly outline the capital you need to secure, you will not only have an easier time securing business capital (well thought out plans have a higher probability of getting funded), but you’re also more likely to meet or exceed your profit expectations (well thought out plans have a higher probability of making money).
We’ll get into a lot more on how to secure business capital as there can be a lot to it, depending on what you’re trying to do.
But the starting point is not “where do I apply?”, or “what tricky things can I do to get an application approved?”
If you that’s where you want to start, you’re looking to become another statistic.
Click Here To Speak With Financing Specialist Brent Finlay
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