Capital formation and strategy

You have the vision. You have the drive. You have a product or service that will change the world. The challenge now? Getting your idea off the ground. In order to do that, you need capital. "Money makes the world go round," as the saying goes.

For small to medium-sized companies, raising capital can be difficult. The lure of additional money leads many business owners to grossly underestimate the time, effort, and creative energy required to get the cash in the bank.  That's where a fractional CFO consultant comes into play.

What is capital raising?

Cash is the lifeblood of your business. Money is necessary to purchase supplies/inventory, rent office space, pay your staff and vendors. Without cash, your business is just an idea on paper.

Fundraising, or raising capital, is how you keep your company's cash flow steady during crucial stages of your business. It's an injection of funding meant to bolster your company's solvency. In other words, raising capital essentially means gaining money to grow your business.

The cash flow problem

Fundraising isn't just a problem for startups and brand-new companies. Extra funds can be critical to the future of a business at all stages. In fact, often when companies are at their peaks, primed for expansion or new products is when they are most cash-intensive.

In the case of an economic downturn, a disruption to your supply chain, or some unforeseen circumstance, your company might need a quick injection of funding in order to navigate unpredictable waters. Fundraising is all about launching your company and keeping it afloat, and the activities involved are where your company's CFO makes the greatest impact.

Do you have enough cash flow? Give our free cash flow reporting tool a try

Methods for raising capital

Raising capital can be a nerve-wracking experience for the average business owner, especially if they don't have the background that an experienced CFO does. Fundraising carries a stigma: begging for money, cold calling, or making a desperate sales pitch. It doesn't have to be that way.

There are many different methods for raising capital. The basic choice comes down to whether you want to pursue capital through:

  • Equity
  • Debt
  • A combination of both

Equity involves selling part of your company's value to investors, employees, or the public. Debt involves taking on various types of loan products.

If your company is privately held, you can sell shares to employees and investors as a way to quickly raise money. If you decide to take your company public, you can sell stocks and bonds to anyone interested. Equity is always give and take, however. Selling a piece of your business dilutes your ownership.

Investors are another form of equity. Types of investors include:

  • Venture capital firms
  • Family and friends
  • Angel investors
  • Business incubators
  • Crowdfunding resources

Angel investors are one of the quickest ways to raise funds, but like other forms of equity, that comes with compromise. Angel investors look for a non-traditional investment opportunities. They may see a kindred spirit in your company and its product. However, investors of all types become a de facto partner in your emerging corporation.

Debt is the other primary method for raising capital. Debt involves taking bank loans, private loans, or purchasing capital investments using a credit card. The obvious trade off is the interest your company will incur over the life of the loan.

No matter what method you choose, your company's finanical team plays a critical role in preparing for each.

Related reading: An IPO success story

The benefits of a fractional CFO

Raising capital involves planning a long-term financial strategy for your company. That strategy will more than likely include capital obtained via equity and debt. The key is balancing your financial picture so that it provides a comprehensive benefit to your entire business. That's the role of a CFO.

Focused Energy's goal is to help align the financial and operational strategies to your business vision – including helping to raise capital in a way that’s appropriate for your company’s stage of growth, goals and challenges.

We can provide the data and deploy the oversight, reporting and funding mix strategy that is right for at each stage of growth. Let us help take the guesswork out of your business by:

  • Creating a funding strategy
  • Developing reporting processes and procedures
  • Positioning the company for investors
  • Executing due diligence and business valuations
  • Aligning operational and financial vision

Not every company has the luxury of a dedicated financial officer. That's where Focused Energy's CFO services come into play. With a fractional CFO, you can employ an experienced financial professional to help raise the capital that you need, at a fraction of the cost of a full-time employee. To get started on your company's enduring financial health, contact Focused Energy today.

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