Steps to Growth Capital Fast Track

Financial Needs and Performance

"You can't just ask for a million dollars.... Writing a business plan is tough...it's very time consuming but it's critical. You simply won't get any further if you don't have an effective plan. It forces you to write your needs down exactly."*

Begin with a thorough, strategic business plan that projects your financial needs and performance into the future and answers these key investor questions:

• Where will you be in five years?
  
• How will you get there?

Preparing your plan, and accompanying financial data, can be time consuming. And it requires some special skills. Management and external advisors may be able to help in putting it together.

Forecasting

"I built a plan that required $3.5 million. People asked me if I could do it for less. So I needed the arguments to justify it."*

Investors will look very closely at your company's plan and projected financial statements to see if your business will generate an adequate return in a reasonable amount of time.

Your plan and financial projections must show, in detail, how you'll use the funds you get and how your company will perform over the next five years.

Determining Financial Needs

"You need to identify ALL your costs. It can be boring but I wanted to know my costs exactly. I interviewed employers to find out what salaries would cost, got the costs of phone lines and office equipment, checked out expected rent...."*

To finance your growth initiative, you'll need to know how much of each of these types of funds you'll need:

• working capital (for day-to-day, month-to-month operating costs);
  
• fixed costs (for equipment, buildings, etc.);
  
• special marketing costs (for advertising, promotions, etc.); and
  
• a financing cushion.

Projecting Performance

"You've got to justify the size of the market that you expect — and investors are going to be very skeptical about that."*

Investors will want evidence that you can really achieve the gains that you forecast. They'll be looking closely to see if:

• your analysis of expected future market conditions is convincing;
  
• the working capital needs, production capacity and personnel requirements you predict are consistent with the level of growth you forecast;
  
• the growth rate you forecast is reasonable for the market you're in; and
  
• your projections hold up under different economic and market conditions.

Your investment proposal should include:

• annual projections for a period ranging from one to five years;
  
• a detailed monthly cash flow budget for the first year; and
  
• sensitivity analyses of your projections under different scenarios.

Action Items

See the Financial Needs Checklist for help assessing what has to be done to determine financial needs.

* All quotations used with permission of Chris Griffiths, Griffiths Guitars International, St. John's, Newfoundland, Canada.

<< Previous | Next >>