Financing

Home Services Financing

It helps to be well funded or to be backed by a wealthy owner. But all business still have to perform on their own merrits, eventually.

Working capital

It is a paradox that a growing and profitable business may still reach severe financial challenges. Unfortunately it happens too often and cash flow and liquidity is the key. I.e. the working capital requirement versus available funds at each and any time.

A rapidly growing business tends to consume working capital at a speed not yet matched by incoming cash flow. And orders received still needs to be build and delivered before payments is available on the accounts. Monitoring and managing working capital is highly important with a growing business.

External capital

There is several external financing options with different short-term and long-term pros and cons subject to purposes. Different options are available to finance investments in machinery and equipment, in working capital or acquisitions. Spend management time managing the core business and seek help to analyse your net financial needs. Only afterwards you should explore financial options.

Need help and support to take your business to the next level? Need advise on business financing? Get in touch for a discussion.

Stock of fans at Ymer Technology
Manage the stock and you manage working capital.
Jonas Florinus discuss pros and cons with receivable financing.

Key Features

Working capital
Working capital involves the entire company

Liquidity is the blood that keeps the company running. Don’t mix revenues or profit for cash flow and liquidity. Managing working capital involves the entire company, not only the finance department.

Ordering materials and parts requires capital. Managing your supply chain, negotiating favorable payment terms and working the logistic schedules defines your need for working capital.

Managing your stock, be it materials, parts or finalized products, defines your need for working capital. Just in time materials and parts call and deliveries versus safety buffer influence your stock turn over. The responsibility and best practice of the production team will be key in this respect.

Lead times, payment terms, outstanding not yet payed accounts receivables are areas to keep an eye on. The difference in 20 days of accounts receivables easily accounts for millions of euros in financing as the business grow.

It is time well spent to ensure all key employees understand the working capital game. You shall consider training, or work shopping, on business financing for your key employees. Once accomplished, behavior, negotiation skills and efficiency improvements will make dramatic difference to company finances. Need help and support to take your business to the next level? Need advise on business financing? Get in touch for a discussion.

Loans are not risk capital
Receivable financing as a business financing tool

For many medium sized companies receivable financing is an excellent method for external financing. The interest rate might be higher than on a credit facility but the main benefit is a hazel free solution. Implementing and organizing the report routines can sometimes be a bit cumbersome depending on your choice of bank and solution. Once implemented however, you have a great standby financing facility for your working capital requirements.

Bank loans

To obtain a bank loan as business financing you need a relatively stable business and an income track record. Loans are not risk capital, only a provider of resources. As such is shareholder guarantees required in most cases when applying for a bank loan by privately held companies. Bank loans can still make sense however if other resources are exhausted.

Other forms of business financing

Examples of resources beyond own generated cash flow and bank loans are public grants, semi governmental investment loans or leasing. For slightly larger MidCap companies or for large corporations one can under certain circumstances also consider issuing corporate bonds. Your bank or a debt capital market advisor organizes the bond with other bond investors providing the debt financing.

There are different short-term and long-term pros and cons with different financing solutions, subject to your objectives and your specific circumstances. Spend management time managing the core business and seek help to analyse your net financial needs. Only afterwards you should explore financial options.

Need help and support on financing in order to take your business to the next level? Need advise on business financing? Get in touch for a discussion.

Risk capital
Risk capital do have some complications you need to be aware of

In the technology start up business, successful funding from venture capital sometimes seems to be the yardstick of success. Let us for a moment disregard the importance of developing the actual business and focus on the funding as such. Risk capital being your external business financing.

Bringing on external risk capital does have advantages but also some major complications. An external investor has an agenda. Venture capital, private equity and institutional investors require not only a return but also liquidity. I.e. at some point they need to realize their capital gains which means selling their investment. Assuming your business is successful, your will hardly be able to repurchase their shareholding unless you have additional wealth. What the new agenda holds for you might be a surprise. Therefore, consider pros and cons before bringing external capital on board. Your partners will be co-owners. And they will exercise influence along with their agenda to maximize the return of their own investors is their target.

Risk capital can also be a powerful resource, but keep your objectives clear

Having said that, there are many great examples of external investments as business financing in companies. Privately held businesses as well as listed companies and subsidiaries of large corporations engage frequently and successfully with external investors. Seek help if targeting to raise external capital from investors like above or from strategic industrial partners. The process is time consuming and the negotiations are for real, regardless how friendly your discussions appears to be. Most importantly, your objectives shall be clear and hence also your business plan for the coming years. You need perspective on objectives and on your own targets for successful fund raising and partnerships.

Need help and support to take your business to the next level? Need advise on business financing? Get in touch for a discussion.

Acquisition financing
Acquisition financing

Under certain circumstances, making add on acquisitions make sense when growing your business to the next level. For example:

  • Acquiring local businesses in new geographical markets. The purpose can be to gain foot print in the market and customer relationships for further sales development. Another purpose can be to gain access to manufacturing units or distribution centers.
  • Acquiring complementary technologies, products or services.

I have personally been engaged in multiple acquisitions and divestments, domestic as well as international. Smaller add on acquisitions as well as really large ones in the multi billion euro league. Before making an acquisition there are certain preparations necessary to increase the potential of success. There are also timing issues and objective issues to consider prior to engaging in acquisitions. Once decided however, different options are available for acquisition financing, if needed.

Need help and support to take your business to the next level? Need advise on business financing? Get in touch for a discussion.

Preparation is key - are your ready?
Preparation is everything

To raise business financing or external capital is similar to prospecting potential new customers. The chance for success is higher if you are well prepared. Examples or areas you shall consider and reflect upon:

  • Your mid term to long term ambition with your business. Consequently it sets the tone and limitations on any fund raising. Important.
  • Why, how much and for what shall new business financing be used. How does the plan look like?
  • Exactly when is capital needed and at what rate of draw downs? 
  • Ideal financing partners or investors beyond the actual business financing? In the end this will be very important to have a view on before starting any business finance discussions.
Additional considerations if contemplating strategic partnerships, equity fund raising or acquisitions

When entering dialogues on strategic partnerships, equity fund raising, mergers or acquisitions there are some additional considerations to be made. Hence you shall do this before you enter into such discussions. Involve your Board of Directors and your coach or advisor to built a solid ground for the business case:

  • Current owners personal ambitions (drive, degree of control, time horizon for onwership).
  • Strength and weakness of your own business. Potential gaps to solved with a potential deal.
  • Current business traction and profitability. I.e. the big timing and focus question.
  • Also contemplate potential focus areas of equity investors: Your scaleability, your unique sales pitch, your potential, drive, personalities, time horizons, exit options.
  • Alternatively contemplate on the objectives of a potential industrial partner you may enter into strategic partnership with.

Being well prepared and sorted is key to being successful. Need help and support to take your business to the next level? Need advise on business finacing? Get in touch for a discussion.