Feasibility Factors of a Company Finance Strategy

If you are seeking funding for your business, have you considered if your Funding Strategy is feasible? What are the funding factors to consider? In this article I explore certain funding factors such as Risk, Cost, Control, Flexibility and Availability. These factors can help you determine if you have found the right funding source as you field finance offers.

In the capacity as  Turnaround Consultant who develop business plans for business funding, I often see business owners don’t weigh these funding factors carefully. Be sure you do to find the right funding source for your specific capital requirements.

Cost

How will each Funding Source affect our Company’s Earnings?

Plug in the Interest Rate and Equity Participation Models into your Income & Expense Statement and Cash Flow Statement of your  Strategic Plan to see the effects of Debt and Equity Finance on your short- term and long- term Earnings and Cash Flows. What is the effect on your Marketing Plan and Strategic Plan?

Risk Exposure

What levels of risk exposure are associated with the different Sources of Funding you are considering?

Equity Finance holds less risk to the Company than Debt Finance as the Equity Investor is taking all the risk.

• Determine the Risks on your Cash Flows which Debt Capital imposes.  How does mixing Debt and Equity Finance affect your Risk Threshold?
• Remember:  Debt Finance is conservative but it does present an inherent interest rate and default risk.  Leveraging your Debt exposure with Equity Funding can be a very effective means of reducing your Total Finance Risk.

Flexibility

Will covenants and conditions imposed by your Potential Funding Sources reduce your Flexibility in obtaining future Capital or leveraging internally generated Capital?

Business Loans and Commercial Finance can carry stipulations which might prevent you from pledging receivables, inventory or other collateral for future borrowing. Be careful in packaging your collateral and asset classes when negotiating your Debt Finance.

Consider Sale-Leaseback Structures to maximise Loan to Values and Tax Advantages on your Equipment and Machinery. Lease Structures are very flexible and are structured specifically for certain assets.

Consider Cross-Collateralizing your Assets only if absolutely necessary as this Business Finance Practice can take away a lot of the future flexibility for collateralizing loans.

Rolling Credit Lines can be set up using a variety of Collateral Sources and provide instant opportunity Capital when needed.

• You could use renting income from a Real Estate Investment to secure a Line of Credit.
• You can use Blue Chip Stock Portfolios as LOC collateral.
• Think outside the box and reserve your major Asset Classes for your Major Finance needs. For instance:
  • Real Estate Assets for Long- Term Finance.
  • Equipment and Machinery for Lease Finance.
  • Receivables for Factoring when needed.
  • Inventory for short term finance needs.
  • Cross Collateralize Personal Assets for your Line of Credit Opportunity fund: Rental   Property, House, Condo, Stocks, Cash Value Life Insurance, etc.
  • Utilize Supplier Credit to leverage your LOC if necessary.

Note: Short- Term Finance is often much more expensive than Long- Term Finance so ensure your anticipated Revenue Growth & Cash Flow can quickly pay it off.  Remember the Matching Rule.

Ownership Control

Can your ownership control be affected?

• Determine the effect of Board of Directors representation.
• What Operating Mandates does a potential Equity Sharing Agreement contain?
• Will pledging of Shares for Equity or Debt Finance inhibit your control down the road? i.e. May not affect present day operations but could affect Operations down the road as your Stock Structure, Ownership Structure or Business Structure changes over time.

Capital Availability

How has availability to certain Business Funding Sources been affected?

• Economic Conditions can severely limit the availability of Bank Finance.  Prolonged Economic Downturns can limit Equity availability.
• Timing is key for Equity Funding.  Are the Venture Capital Funds you are interested in still investing in opportunities or have they closed the fund or pledged their remaining funds already?
• What Alternative Funding Sources are in your Funding Strategy if availability for anticipated, preferred Finance Sources dries up?

Analyzing The Finance Factors

Figure out which of the finance factors are the most important to your funding strategy, and then prioritize them and apply to your finance strategy. By prioritizing your finance factors, you can quickly determine which funding sources are a match. This factor analysis also gives you the right information to structure the type of funding instruments and products your funding initiative requires.

About The Guest Article Writer – Frank Goley

Frank Goley has an experienced background working with small and medium size businesses as a business consultant, business turnaround consultant, business plan writer, business plan expert, small business consultant, business coach, business plan consultant, marketing consultant, business planner and online marketing consultant, and seo consultant for ABC Business Consulting. He has been helping companies to succeed for many years. Frank wrote his first business plan over twenty years ago. He is an expert in developing business plans, marketing plans, funding plans, strategic plans, turnaround plans, web marketing strategies, and project specific business plans. Frank is the author of Business Plan Book, The Comprehensive Business Plan Workbook – A Step by Step Guide to Effective Business Planning, and he has over 150 published articles and e-books on business success strategies. He also writes the Business Success Strategies Blog and publishes the Business Success Newsletter.

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