FInancing

Finding Solutions: Financing Edition

By: Kiran Sagoo, AWE Financing Specialist

Have you ever had difficulty financing your business properly? Do you struggle between finding investors and also maintaining the vision you have for your business? You’re not alone. This is a common challenge faced by a number of entrepreneurs who are looking for more capital for their business. At our recent Learning Day: Sparking Solutions event, this topic was discussed during our Finding Solutions Session. For those of you who were unable to attend, we’ve compiled some of the solutions that were brainstormed and we’d like to share them with you!

Challenge: How do I decide whether or not to accept potential investment if investors have a different vision of what the organization could look like in the future? Do I take the money and build the company they envision? Or keep going on my slow and steady growth path?

It can be difficult to balance the needs of potential investors and your own aspirations, however, there are some techniques to making this process less challenging. The first question you need to ask yourself is “how far off are their values from mine?” Take a look at what they believe in and what their opinions are on aspects such as accountability, honesty, communication, work-life balance, and stability vs. high growth. By comparing your views to theirs on such matters you can see if there is some common ground or opportunity for compromise where both parties are happy with the outcome.

However, if you find that the investors have a very different idea of the path the business should take, you could take a cash loan to create a working relationship rather than providing them with equity in your business. This will give you access to capital while also maintaining your vision. If you stray too far away from it, you might fail not only in your business, but also emotionally and spiritually.

Once you have made the decision as to whether or not the potential investor is the right fit for your firm, make sure you spell everything out in your contract or agreement to prevent any discord in the future. This will also ensure that both you and the investors are aware of the other’s expectations and values. Finally, create a strategic plan for the next few months and years to hold yourself and the investors accountable. It will allow for smoother operations within your organization and help you follow your vision!

Challenge: How do I know when to bring in outside money and how much capital (investment, financing) is needed to grow from the current stage to the next?

Although this question was not answered at Learning Day, it is one that we felt was worth exploring.

Many entrepreneurs tend to seek financing when they are already maxed out with the capacity they have in their business. Whether it’s with their own time spent trying to keep up with the demands of their business or their financial resources are just not enough to keep up with the business needs, these entrepreneurs sometimes find themselves scrambling to find the help they need. This can be problematic as it can lead to rushed decisions about investors or other financing.

My advice to entrepreneurs is to pay attention to their time and budget constraints when they begin to stretch outside their capacity and take time to revisit their business plan.

As you explore financing, ask yourself: What equipment do I need to be more efficient with my business output and is it worth the investment? Do I need to hire employees to help with the increasing demand? Will spending more money on my marketing expenses lead to growth in clientele and revenues? Does this fit into my business planning? What resources do I need and how much will it cost?

Discuss your business planning needs with a trusted advisor, business mentor and even your own team. Planning for the building and growth of your business in as far in advance as you possibly can will lead to more time for you to explore your financing options which might include seeking outside investors who align with your company’s vision or getting a business loan.

We reached out to the AWE community for more advice. Here’s what they have to say about financing challenges business owners may be facing and some remedies to their concerns:

 “It depends on what type of outside money is being considered. If it is some simple operating capital for a company that is in a slow growth phase, then simple debt is likely the right instrument, providing that the bank will help. This would be considered non-dilutive capital and sit as a liability on your balance sheet. If you are a tech company with a market opportunity to scale quickly once commercialization starts then considering angel capital could be a good option. This will likely be dilutive capital and you need to make sure the investor/company match makes sense as not all investors are a good fit for your business. The business will need to ensure they have a shareholder agreement, a subscription agreement and available issued shares for assignment.”

-          Kristina Milke, President of K-GAR Consulting Inc.

“It’s always a fine balance between personal money, outside share capital and debt. That specific balance is dependent on your business plan.  I prefer to have a balance where I can bring in shareholders who have skill sets that I may need in my business in the future.  As you grow, individuals with “skin in the game” bring value beyond their share capital.  They bring networks, expertise, and an easily accessible “adhoc” advisory board.  I am a proponent of bringing in external share capital to dilute risk, get access to expertise and not to be reliant solely on debt, which has the fixed interest costs. I will say that not all shareholders are equal, so it’s important to interview prospective shareholders and ensure they are a fit with the philosophy and strategy of your company. To seek the right balance for your company, always consult with your advisors to determine the appropriate strategy for your business plan.”

-          Phoebe Fung, Proprietor of Vin Room & VR Wine

Managing cash flow is an important activity for any business. Building at minimum, a 12 week cash flow forecast that takes into account the exact week in which cash comes in or goes out.  This helps provide insight to cash needs over the next quarter and helps make smart decisions about how to manage your working capital or when to make active decisions to stretch it out. Short-term financing such as a line of credit can also be used to bridge the gap between payables and receivables.”

-          Melissa Richards, Managing Director, Entrepreneurship Strategy, ATB Business

 

Financing challenges can be difficult to deal with and they often create a great deal of stress for business owners. That being said, remember that you are not alone and there are ways around even the most difficult obstacles.

Have questions about financing for your business? Reach out to AWE