Sun. Nov 17th, 2019

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Things To Keep In Mind When Seeing Growth Capital

3 min read

 

One of the most vital aspects of running a business is ascertaining that there are enough funds to prosper while meeting goals. While companies are usually able to generate operating profits and adequate revenue, they may not have enough capital for continued growth and expansion. For a well-established business, growth capital might be required to introduce a new service or product, fund an important acquisition or even reduce the company’s debt.

However, when businesses look for growth capital options, they face various challenges and the most common include:

-A poor proposal or business plan in the eyes of the lender

-A sluggish market that doesn’t favour the borrower

-Variations in interest rates, terms & conditions and fees.

-Time constraints, where the company can’t afford the time spent in sourcing funds.

-Unsuccessful negotiations which lead to the cancellation of the loan.

-Unresolved issues such as outstanding debts. These issues tend to scare away lenders.

When looking for capital growth, there are a few things you may want to keep in mind:

1. Know the current valuation of your business. This is a key aspect as it determines the amount of equity you will need to part with to potential investors. For instance, if your business is mature and you have a good track record in terms of profitability, you wouldn’t want to give up too much equity.

2. Create a robust and realistic business plan. Your business plan needs to clearly state how much growth capital you need and how the acquired funds will be invested. It should also state how the funds will boost growth in cash flow and revenue.

3. Know the risks involved with your plan. The business plan ideally needs to address or reduce potential risks like changes in competition, client focus, global economic and technology factors.

4. Comprehend your readiness for growth capital. It is important that you be prepared on various levels to take full advantage of the newly acquired growth funds. Robust management, significant IP (Intellectual Property), proven market traction are all things that contribute towards readiness in receiving growth capital.

5. Know the importance of timing. Know that the best time to seek growth capital is when you can and not necessarily when you require it. So, be on the look for times when the market favors lenders and when investors are looking to collaborate with a company like yours.

6. Know how to identify the right investors. Picking the right investor is vital for a successful deal. You should be on the hunt for a person whose interests are on the same lane as yours. The investor should ideally bring experienced guidance, supply the necessary resources and contacts and anything else that will make your company grow and increase its value.

Lastly, it is always advisable to consult a financial advisor. A reputable, skilled and experienced advisor will an invaluable asset in navigating what can be seemingly a challenging and time-consuming process. With these tips, you should be able to make the right decisions when seeking growth capital.

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