In an article today at imediaconnection.com, Wall Street consultant Jeff Stone of Crescent Fund offers six guidelines for business owners seeking to raise funds for expansion. You can click here to read the original post, or read my summary below.
1. “Create a comprehensive document that demonstrates how the initiative that requires funding is aligned with the company's overall strategic plan. How exactly will the money be used, and which strategic objective will it help to meet?”
2. “Establish precisely how much money is needed to accomplish the endeavor.” Not knowing how much you need is a sign of poor planning and could lead to a shortfall or poor execution.
3. “Determine which type of financing works best: debt or sale of equity." Keep in mind that "debt successfully serviced means being able to postpone the sale of equity until a succeeding stage of growth when the business has become much healthier” - and when you can hopefully sell less stock for more money.
4. “Provide accurate, timely and complete information to investors, including an honest expectation of return on investment.”
5. “Never proceed with the planned venture until the full amount of necessary capital is in the bank.” Undercapitalization, says Stone, is both common and dangerous. “Many companies procure a portion of the capital needed and then rush into implementation in the hopes of raising the remainder along the way. In almost every case, the economy works against them, and the shortfall turns the entire project into an unrecoverable investment.”
6. “Never raise more money than needed to meet the objective.” Selling more equity than required dilutes your ownership position. And why pay interest on unneeded funds?
According to Stone, long-term business success boils down to “simple good business practices revolving around an intelligently crafted plan and a series of smart financial decisions that align each expansion phase in the direction of the long-term strategic goal.”