How to Prepare for Your Companys Financial Future
Sooner or later, most business owners need to look for outside financing. Whether it's a line of credit with a bank to handle predictable cash crunches or a significant capital investment to improve plant and equipment, virtually every business will need access to additional funds at some point in its life.
But the time to start thinking about how to make the best impression with bankers and private investors ideally begins long before you schedule an appointment to discuss your financing needs. In fact, the best preparation you can undertake to get the financing your business requires is the very same work that you should be doing to ensure that your business is financially sound in the first place. Business owners that can consistently demonstrate their ability to effectively plan the future of their company will stand out in the crowd of more haphazard entrepreneurs.
Here are several things that you can do now to ensure that your search for outside financing will be successful:
Determine Realistic Rates Of Growth: Unless you're the next Amazon or eBay, "pie-in-the-sky" projections about how quickly your revenues will grow will usually be seen as so much wishful thinking. Effective financial planning requires you to develop your business around realistic growth rates. Otherwise, you'll wind up in the hole before you even begin.
Develop Pro-Forma P&L's, Cash Flow Reports: Once you have estimated what your revenue picture will look like, you can more accurately predict what your financing requirements will be. Put together projected profit and loss statements and cash flow estimates so that you know exactly how much financing you'll need and when you'll need it.
Write Your Business Plan: Contrary to popular opinion, written business plans are not just for those who are looking for venture money. A well-written business plan can be an effective planning and management tool for every business. Often, the very act of writing about your business forces you to think through complex strategic issues, reevaluate your critical business assumptions and identify other areas where careful analysis will strengthen your chances of success.
Revise, Revise, Revise: Take a look at your plan and your projections at least once a year, and revise them according to actual results. If your performance falls short of your expectations, analyze why you failed, implement the necessary changes in your business strategy and adjust your projections to more realistically forecast future results. Likewise, if you were too conservative in your projections, don't be afraid to scale up your targets.
Keep Your Finance Contacts In The Loop: A good relationship with a banker or outside investor should be developed over time, not simply when you have the need. Keep your financing contacts up-to-date with what's going on in your business by providing regular financial reports and by meeting with them periodically to apprise them of how things are going. The more knowledgeable they are about your business, the more comfortable they'll be in providing you with the help that you need when you need it.
William von Achen is president of Strategic Management Resources, an executive coaching and management consulting firm offering advice and counsel to business owners and senior executives. For more information visit our web site at http://www.smrweb.com
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