A Plan for Growth, Essay Example

Sources of Financing for Custom Stitches

In order for Andy Rexford to seek additional financing,  for growth investment of his business, he needs to complete a number of preliminary steps.  The first is the production of a detailed Business Plan that demonstrates the success and viability of the existing business.  There are a number of key points that need to be highlighted for future investors:

1. Details of the Income and Expenditure of the business, highlighting revenue or income in the period;
2. Risk Assessment of the business
3. A clear vision of the business spelt out in Mission, Goals and Objectives terms
4. Cash Flow – Historic and projected data
5. The value of the Assets in the Company and any significant liabilities

It is worth spending some time on this presentation and if necessary getting assistance from a professional firm of Accountants.  It is from this document that potential investors will make an early determination as to whether or not to advance you the money.  The following options are now available for obtaining the required capital loan.

Loans from Banking Institutions

If you have a reasonable credit history the bank will often provide an unsecured loan.  If you use the equity in your property they may also advance  you monies on the basis of a secured loan.  Hence start-up businesses often use an initial injection of their own monies based upon a combination of secured and unsecured loans. The Banks will examine your business plan, your completed accounts and credit rating.  In addition they will look at your business expertise and professionalism.  The combination of this analysis helps them to determine whether they consider you to be a good credit risk for advancement of the money.

Loans from Venture Capitalists

By using Venture Capital firms who may advance you money for a % ownership in the business.  These firms look for a sound business plan  and a management perspective that has a high potential for providing an adequate return on their investment. ” Venture capital firms are owners; they hold stock in the company, adding their invested capital to its equity base.” (Bizmove.com, 2010). This concept differing from Banks who merely loan you the money.

Small Business Grants

Grants are another useful form of early start-up funding ” first step in raising capital is to go to apply for all business grants that you may qualify for. You can search the Internet, inquire with the Small Business Association (SBA)” (chezfat, 2010).  The Federal Government have an amazing amount of money set aside for the development and promotion of small business schemes.  Good sources to gain information are local Chambers of Commerce, Small Business Agencies, often branches of State or Federal Government.  Monies are allocated as either direct award grants or on a loan basis similar to Banks.  It is imperative to have a well prepared business plan to accompany any grant application. Equally if you can prove that the growth plan increases local employment or contributes to a community development, then this will considerably strengthen your application.

Advantages and Disadvantages of Finance Schemes

The following table illustrates the perceived advantages and disadvantages for each of the above mentioned financing schemes:-

Financing Recommendation for Andy

I would prefer the Commercial Bank loan option.  The business is on solid footing and has demonstrable opportunity for growth.  The Banks like this type of business when supported with a good business plan and successful track record.  The Banks offer schemes in Association with the Small Business Loans Administration Program.  The difficulty Andy will face here is the amount of investment required i.e. $700,000 although he has Sales slightly in excess of this amount. With the Commercial Banks advancing this sort of money they would look for assets that could act as security on their loan.  So Andy might be faced with a choice of accepting a limited growth potential plan for less money loaned.

If Andy felt more proactive he could turn to the Venture Capital Option. Under this scenario he is more likely to obtain the high Capital Investment required.  Very often the risk is split i.e. 2 Venture Capitalists offering $350,000 each for a 25% share in the Business. Very often the greater the considered risk, the higher the % equity stake in the business is required.  Venture Capitalists are often business experts in making money and can often bring added expertise to the business in terms of marketing and business contacts.  With high risk businesses they offer want vested control in the business.  Thus the ability to influence decision making and protect their capital investment in the business.  These people look towards the future and as a business owner you need to be aware of this.  25% stake holding today might not seem too bad but if the business quadruples in size over the next 5 years you may not think it is such a good deal.  As such you have to go into this in a shared partnership fashion and be prepared to lose some vested control of the business. ” There is, however, still a very clear role for venture capital, and that is in helping a company move from initial product to huge scale.  This still takes significant capital”  (Brisbourne, 2010).

There is no doubt that Venture Capital Companies have promoted tremendous growth in the development of small business operations.  Between 1972 and 2000 venture capital firms raised over $104.8 billion.  The TV program ‘ Dragons Den’ is an example of Venture Capitalists that invest in business growth opportunities.  Often extremely successful business people that offer  investment and business expertise ” Venture firms play an active role in their investees’ board of directors, providing oversight, strategic advice, and credibility to the company.”  (Jacobs, 2010)

Works Cited

Bizmove.com. (2010). How to Raise Venture Capital Money. Retrieved 8 9, 2010, from Bizmove.com: http://www.bizmove.com/starting/m1j.htm

Brisbourne, N. (2010). The venture capital model – how building a company has changed. Retrieved 8 9, 2010, from Equity Kicker: http://www.theequitykicker.com/2010/03/02/the-venture-capital-model-how-building-a-company-has-changed/

chezfat. (2010). How to Start Raising Capital For Business. Retrieved 8 9, 2010, from Ehow: http://www.ehow.com/how_5356757_start-raising-capital-business.html

Jacobs, P. K. (2010). Venture Capital: Spurring Innovation and Growth. Retrieved 8 9, 2010, from Harvard Business School: http://www.hbs.edu/entrepreneurship/newbusiness/2002spring_6.html