New Financing & Preparation
The lifeblood of any company is its cash flow. Our ability to grow depends on our ability to finance our projects whether from internal cash flow or from external investors and bankers. As we all know, the way we finance is going to make or break us, especially when a crisis develops in our company or our marketplace. A crisis might be a growth opportunity but for too many of us it turns out to be a flirtation with disaster. So how do we get ourselves in better financial shape?
If we currently have strong cash flow, then allocating finances becomes a matter of wisdom and mission, a matter of carefully chartering our path. But for the rest of us our growth is going to depend a lot on courting potential financiers. We might be looking to commercial bankers, investment bankers or venture capitalists, or if we are desperate, from business colleagues, family and friends. The best source of capital though is usually from customers (and possibly suppliers).
Customers are a great way to finance a business for many reasons. First, customer financing is typically non-dilutive. They want something from you other than equity in your business. Second, customers also help us fit our product to the market. And thirdly, customers will help debug and improve the quality of the product.
Regardless of who we court, they are all going to look at our books through their own particular set of formulas and measurements most commonly known as financial ratios. Too often the executive team does not pay enough attention to how these ratios look, for to really do so means having to change the prevailing way of carrying on our daily business.
Sometimes making such change is relatively easy but other times it can be rather painful. Usually making ourselves look more attractive (financially) can be done in an orderly and systematic way over a number of months and in a way that increases internal cash flow significantly, (without having to ramp up marketing and sales efforts).
The alternative to making such change - - as in maintaining the status quo or accepting “avoidance behavior” - - usually means being unable to obtain reasonably priced financing and having to turn to progressively higher priced forms of capital. The problem is not so much an unwillingness to change as it is being caught in “firefighting mode” and the pressure to “do more with less”. With a little guidance cleaning up what’s behind those critical financial ratios will actually make the day-to-day routine more and more comfortable. A little know-how goes a long way here.
Opening up our books to an external advisor requires a trust building process. It means talking as equals, not up, not down, but in a frank, candid, and warm way. The financial statements need to be understood not in some cold clinical fashion but in terms of what they really represent and why. Knowing what those statements actually mean is the first step towards building financial attractiveness. The change process can become quite simple after that, not easy at first but simple. The easy part comes later from a growing clarity.
The preparatory work for a new financing comes from a clear understanding of what ratios have to change and why. The benefit is that operations become more sensible and produce higher cash flow. Increasing cash flow from ongoing operations is what financiers drool over and is one of the soundest paths to a happier kind growth. As that happens then we will have our choice of which kind of financing we want to pursue and we will become the warmly greeted suitor. We probably need to talk and it would be great to meet. Please phone us.
New Financing & Preparation
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