A Few Questions to Keep in Mind
Assessing your financing need is made much more straightforward if you answer a handful of questions about your business. Please keep the following in mind throughout this course:
- How much money do you need? For how long do you need it? How do you know?
- What is the use of funds – precisely?
- What is the growth potential of your business? How fast do you want to grow?
- How much business uncertainty do you face? Is the future clear enough, or do you face a wide range of possible outcomes?
- Give the preceding, how much flexibility do you need in order to absorb bumps in the road?
- How much collateral in the form of accounts receivable, inventory, equipment, and real estate are you willing and able to pledge to secure a loan?
Your answers will help you sift through the sometimes bewildering array of financing options. Of course, your answers will change over time. Financing strategy is a dynamic process. To create good options, it pays to think ahead and reassess on a regular basis.
Explicit Business Models
Whether or not they’re formal, we all use models when making business decisions. Most days, they take the form of tried-and-true rules of thumb. However, intuition isn’t always a very good guide when it comes to making informed forecasts of your cash. Creating a quantified model is more than a good idea. It’s often essential.
To get started, you may want to check out online software such as LivePlan. It does a pretty good job of walking you through the modeling process. However, it has some blind spots – particularly regarding the forecast of inventory when you have a complex supply chain. A better tool is a visual modeling tool such as Sysdea.