ABMI is able to assist clients in finding the right fit for capital raising needs. Through our network of venture capitalists, private equity firms, mezzanine providers, and commercial lenders, we can provide our clients with advice as to which avenue is best for the client, and then connect the two parties once the best avenue(s) have been determined. Whether our clients are looking for a recapitalization, growth capital or acquisition financing, we’re positioned to assist in the efforts of finding the right funding source to partner with.
When do you raise money?
The decision to raise capital to help fuel growth is an important one. As a business begins to experience the results of their efforts in the form of increasing sales, it often becomes apparent that the infrastructure previously sufficient to sustain sales is no longer sufficient. An additional investment in resources including equipment, personnel, technology, inventory, etc. is often required to support growing sales. An overly conservative approach to this challenge could result in missed opportunities and a bottlenecked organization. On the flip side, being overly aggressive or optimistic can lead to being overleveraged or unnecessarily diluting ownership.
- Business Plan
While most business owners are so busy running their company the thought of dedicating the time and resources to developing a business plan can be overwhelming and seem like an ineffective use of time. This is a misconception. Taking the time to research the market, industry, and competitive landscape while thoughtfully calculating a strategy to grow your business is an essential process that can differentiate truly successful firms from mediocre. Is the growth opportunity truly sustainable or is this a temporary surge of business? What is needed to capitalize on the growth long term? What are the expected profits associated with the projected growth? Growth is not always profitable. Is the projected growth going to enhance the market value of the business? This is not always the case.
- Debt vs. Equity
There is a big difference between debt and equity financing. Debt financing involves an obligation to repay a defined amount of money usually secured with personal and business collateral. It has a defined interest rate (fixed or variable), and a specifically outlined payment schedule. Terms can vary substantially and are negotiable, but usually driven in part by market conditions. While business assets are often pledged as collateral no ownership rights are usually transferred. The documents typically used to secure debt financing are a promissory note and security agreement. Debt financing is traditionally considered less expensive than equity. Equity financing involves transferring an ownership interest in the company to the party providing the funds. There is often a delicate balance that needs to be negotiated between the business owners concerns related to dilution of ownership and loss of control vs. the investors return on investment motivations and risk mitigation. The ownership interest can come in a variety of forms. You should consult an advisor knowledgeable in securities transactions to assess your specific situation and negotiate a structure that will work for you.