Financing Your Growth
Believe it or not, this post was inspired by a print advertisement for by BMO Harris Bank in a recent issue of Inc. Magazine. The ad was about “The Five Keys to Financing Growth.” It is an ad designed to promote the Bank’s small business banking products.
The ad begins: “Every company should have a strategy in place to finance growth from day one, with at least a rough outline of how you intend to do that included in your business plan.”
BMO quotes Patricia G. Greene, the Paul T. Babson Chair in Entrepreneurial Studies at Babson College: “The reality is that most businesses do not have a plan to get themselves ready for the capital they’re going to need as they grow.”
The ad then provides a partial checklist of things that every entrepreneur should do if they think that at some point in the future they will need to raise capital:
- Match your Financing Needs with the Correct Financing Type. In other words, develop an appropriate capital formation strategy. For example, BMO says that it isn’t a good idea to finance a truck on which you intend to put heavy mileage in a short period of time using a long-term loan. Likewise, if you are developing a software product and do not expect to get any customers for a few years, you should seek capital from an investor who is not expecting an immediate return on his investment and is willing to take the risk that you will successfully complete the development and that you will find plenty of interested customers.
- Maintain Control of Your Business. What the bank is saying is that if you attempt to raise investment capital in return for an ownership interest in your business, you might have to give away a controlling interest in your business. That might be true, but in reality, that may be your only choice and that is not always a bad option. You may find that you can be rewarded for your efforts in other ways.
- Have a Complete Business Plan. Yep, that’s right. Every entrepreneur should have a plan that tells a compelling story about a great company or a future great company and includes relevant financial information that makes sense and is defendable. Adds John N. Hickman, regional director of the Eastern Regional Maryland Small Business and Technology Development Center, “This is never a one and done proposition. Review your plan twice a year to check your progress against the goals outlined in it.”
- Manage Your Risk Carefully. This is a nice way of reminding entrepreneurs not to borrow money they can’t repay. What will it mean to your business and your family if something goes wrong, you can’t pay back a loan on time, and you default? Make sure you have carefully answered this question.
- Find the Right (Financing) Partner. Quoting directly from the ad, “Lenders and investors expect to earn a return on their money, but the best sources of financing should demonstrate a clear understanding of your goals and the challenges you face. Choose a financial partner who is committed to your success and can provide advice and guidance to help you achieve it.” Says Professor Greene, “if all you get is the money, you didn’t do it right.”
Although this advertisement from BMO Harris Bank is about selling banking products, the core message is a good one. Like everything else you do in your business, thoughtful, careful advance planning and a great business plan will get you better results time after time.