One of the most critical tasks faced by a business owner is to ensure that there is enough capital to prosper while achieving growth targets. While companies are generally able to generate sufficient revenue and operating profits, they may not have sufficient capital for continued growth or expansion. For a well-established company, growth capital may be needed to introduce a new product or service, reduce the company’s debt or to fund a significant acquisition.
However, when companies look for growth capital options they are faced with many challenges. This includes:
• A sluggish market, which does not favor the borrower
• A poor business plan or proposal (in the view of the lender)
• Time constraints (where the borrower cannot afford the time spent in sourcing)
• Variations in interest rates, fees, terms and conditions
• Unresolved issues like outstanding debt, which can threaten a deal
• Unsuccessful negotiations, which can result in cancellation of the loan
Keep the following pointers in mind when seeking growth capital.
• Be aware of the current valuation of your company: The current valuation of your company will determine the amount of equity you are willing to part with to a potential investor. For example, if your company is mature and has a good track record of profitability, it would not be advisable to give up too much equity.
• Develop a solid and achievable business plan: Your business plan should state in clear terms how much growth capital is needed, how the newly obtained capital will be invested in your business and how this capital will enhance growth in revenue and cash flows.
• Identify business risks associated with your plan: Your business plan should address and/or minimize potential risks such as changes in competition, customer concentration, technology and global economic factors.
• Understand your growth capital readiness: Your company should be ready on several levels to make most of the newly acquired growth capital. A solid management, proven market traction, significant intellectual property, etc., all contributes towards growth capital readiness.
• Recognize the importance of timing: Keep in mind that the best time to raise growth capital is when you can, not necessarily when you need it. Look for times when market conditions are ripe and investors wish to collaborate with a business like yours.
• Learn how to identify the right investment partner: Finding the right investment partner is critical to a successful deal. Look for a partner whose interests are aligned with yours, who will bring experienced advice, and supply necessary contacts and resources, that will make your business grow and increase its overall value.