As a former CFO, I know how important developing a sound business strategy and vision is for any company. Establishing goals, driving growth and providing strong leadership are vital to take a business to the next level. The owner has an intrinsic knowledge of their business, and generally will be living and breathing the day-to-day operations giving them a great understanding of their business.
However, if there isn’t a financing plan to bankroll the business strategy, business owners will find themselves scrambling for options and putting their plans, and the business, at risk. In short, there must also be a well-prepared financing plan.
So how do businesses prepare? The owner often does not have the depth of knowledge necessary to create an effective financing strategy as it is not their area of expertise. Owners turn to their controller, CFO, or accountant to provide this insight. However even they do not typically have the time, expertise, or contacts to find all the right lenders that can fit their business needs. As a result, financing often gets treated as a necessary evil, and is dealt with on an urgent basis as needed; frequently at the last minute!
Today, I specialize in business financing, and spend my time helping clients with their needs. I am always concerned when owners and entrepreneurs come to us with great businesses that need last minute funding. They have spent all of their time and passion creating the operational strategy to grow the business, but have not taken the time to assess how it will be paid for.
A recommended approach is to proactively do a formal assessment of financing options, or a check-up, that is integrated within the annual goals and business planning process. Here are some common situations where a financing check-up would help:
- What are the specific capital expenditures planned and what lender, structures, and rates are available?
- Is there a rapid expansion on the horizon that will require more working capital, and if it goes beyond the current lender’s appetite, what are the options?
- If customers’ orders are increasing beyond the company’s ability to manufacture on time and a comprehensive refinancing may be required, how should it be structured taking into account different levels of financing available (primary, secondary and tertiary lenders)?
- Are the current loans maturing and a market check would make sense to learn if any improvements can be made?
Finding the right lenders who will work best with a company’s financing needs is possible. Doing it in an orderly, planned fashion is also possible! When I was a CFO, I leveraged the expertise of external financing specialists to assist my company, and I made it an annual best practice to perform a financing check-up. This was a relatively low-cost solution that provided exponential benefits. The check-up provided the knowledge and professionalism necessary for creating a successful and actionable business plan, and saved significant amounts of time. Knowing the financing options available, and having the plan ready to go at the right moment, meant that my time wasn’t wasted going from lender to lender in search of a solution. Our advisors were armed with the relevant information and could approach the appropriate lenders as soon as we were ready.
With a financing assessment, or check-up, that ties into a company’s operational strategy, an owner can be optimistic about all aspects of their business. They can also be confident about executing their plans.
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Barbara Cowper is a Senior Consultant with the Business Financing group at Farber. Her practice focuses on arranging innovative financing solutions for small and medium-sized enterprises (SMEs) and early stage companies. Barbara can be reached at 416.496.3760 and firstname.lastname@example.org.