Finding Capital to Fund Growth or a Turnaround
Finding the funds to grow a company or work through a difficult time is always challenging. The activities that CEOs and CFOs must undertake are the same regardless of whether the company is growing and self financing, raising capital or thinking about selling. In the end, value creation is all about the amount of future cash flow the company can generate.
Some of the common questions that arise in driving the funding raising process are:
- How much capital?
- When do I need it?
- Who should I get it from?
- How much should it cost?
- How much debt and how much equity?
- Should I personally guarantee the company’s debts? If so, how much?
The answer to all of these questions is surfaced by following a process that begins with end in mind, and then systematically works to narrow the likely and feasible alternatives.
Step one involves understanding the current and historical state of the business and how it got where it is. This is coupled with a clear articulation of the objectives of the shareholders and a defined go-forward strategy. Then forecast the likely scenarios and compare proforma company performance to competitive or industry benchmarks for realism. You should be able to assess the likely use of new funds and the timing of when they are required after several iterations. A nice byproduct of the process is an estimate of the value of the business and how it is likely to change over the forecast period.
Armed with this information, you can then begin to determine the go-forward capital structure and target funding sources. Test the market to see if you can really get the capital desired and drive the process in a competitive environment to negotiate and close the deal.
While this may sound easy, it takes time to prepare and execute... so being proactive is critical if you can (sometimes that is hard in a crisis). Getting the right team of players to partner with you and your management team is critical to drive the process and minimize distractions to operations.
Kenneth H Marks is Managing Partner of High Rock Partners and lead author of Handbook of Financing Growth, Copyright 2009, Kenneth H Marks, All Rights Reserved