Accurate numbers combined with a clear presentation detailing the company’s track record are real strengths when establishing a relationship with a new financial partner. Each individual company may have access to various types of financing.
The first, and most conventional, is a loan from a bank. Bank debt is often used to finance long-term investments, such as a purchase of premises or equipment required for the business.
Leasing arrangements and overdrafts may also be used for short-term expenses to optimise cash flow, but these will normally incur higher interest rates than long-term loans, and should not be relied on to cover operating expenses ad infinitum.
There are other sources of besides traditional bank loans. Investors, business angels, investment funds looking for unusual opportunities with sound business plans, even “crowd funding,” are ways to attract capital investment.
In such cases, your company does not take on any cash debt. Instead, you hand over shares of your company to your investors, giving up some control of your company in exchange for financial investment to help you reach your goals. But choose your investors carefully: make sure you share similar goals and objectives. If your visions differ, there is a real risk of conflict that could be difficult to resolve.
Tip: To optimise your financing sources, it may be wise to use a variety of contributions. But be careful: they cannot all be used for the same purposes. Bank loans are a long-term commitment and can be used to purchase premises or develop new activities, while bringing in new investors can be a way to undertake significant transactions, such as taking over a competitor.
Few companies can grow without taking on debt. The important thing is that the investments made possible by this debt support your growth rather than weigh it down. It's all about balance!
For more tips and advice on business financial monitoring, download our ebook: Boost your financial performance analysis.