A good financial plan displays to investors that you are a competent manager, and that you may have that special managerial advantage over other small business owners looking for collateral money. You may gain a decided advantage through well-prepared plans and projections including: cash budgets, pro forma statements, and capital investment analysis and capital source studies.
Cash finances should be projected for one year and prepared monthly. They need to combine expected sales profits, cash receipts, materials, labor, and overhead expenses, and cash disbursements on a monthly basis. This allows expectation of fluctuations in the amount of cash and planning for short-term borrowing and investment. Pro forma statements should be prepared for planning up to 3 years ahead.
Now, making these financial plans will not guarantee that you will be in a position to get venture capital. Not making them will practically assure that you will not receive favorable consideration from venture capitalists. An investment in the business may maintain the final form of direct stock ownership which does not impose fixed charges. Much more likely, it’ll be within an interim form, such as a kind of loan that can be changed into stock. Most collateral financing agreements ensure a major investor participates in virtually any stock sale and approves any merger, no matter their percentage of stock ownership.
Sometimes the agreement requires that management work toward an eventual stock sale or merger. Clearly, the owner-manager of a little company seeking equity financing must consider that consuming a project capitalist … Read the rest