In the current climate a lot of companies are experiencing critical cash shortages. Business owners need to understand how to finance their enterprise. The Board has the responsibility in this process to make sure that the correct financing strategies are in place, and are well focused and resourced.
The Board should make sure that the financing strategies cover the following 10 questions:
1. Is it the right time to seek financing?
2. Will the required financing be enough to meet the needs of the company?
3. Are the documents to support the financing request completed to high quality professional standards?
4. Does the company have an experienced and competent management team that can deliver against the strategies and plans?
5. Are the right financial instruments being investigated (utilised) and in conformity with all securities laws and regulations?
6. Are the right sources being approached?
7. Have all opportunities to release cash from the balance sheet been explored?
8. Is the optimum capital structure in place to sustain growth and allow for future capital raises, if they are required?
9. Is there an adequate cash management system in place to protect the money lent or invested into the company?
10. Will the company be able to afford the financing being sought?
Many company owners complain about their difficulty in obtaining the financing they want. Their frustration is linked to their doubts that investors are ready to put money in to companies experiencing temporary cash shortage. I do agree that the current economic and financial climate has made it more difficult to get cash, yet I would stress that there is no shortage of available money. In fact, in my experience, there is a shortage of companies who can step up to the mark and demonstrate what investors are looking for. Such companies would have put in place viable strategies; have plans on how to tap into new market opportunities; have the right talented management teams that can seize those opportunities and who can execute the plans well. Even when all of those ingredients are in place, I often observe that company owners are unrealistic about the valuation of their company and refuse to give up sufficient equity to attract the level of investment they require. Put simply – it is better to own a small percentage of a very successful company rather than 100% of a failed one.