CompTIA - Financing Your Business
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Financing Your Business: When and How to Use Debt and Equity This presentation discusses the importance of managing debt and equity for business growth. It covers different types of debt and equity, including loans, lines of credit, stock options, and how they work. Key metrics like working capital are discussed to measure financial health. Maintaining open relationships with lenders and getting advising are recommended to plan financing strategies and prepare for different scenarios that may impact the business. Tools like financial dashboards can help track trends to keep goals on track.
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CompTIA - Financing Your Business
- 1. Financing Your Business: When and How to Use Debt and Equity Presented by: Frank Coker, CMC, MBA CompTIA Faculty CEO, CoreConnex, Inc.
- 2. Why does it matter? • Debt and equity management are essential to growing a business • It is too late to get cash when you’re desperate • It’s far less expensive to do it right (plan ahead)
- 3. Why does it matter? Your money + their money = lift-off (Then you can play with the big boys)
- 4. Agenda: Financing your Business • Why does it matter? • Flavors of debt and equity • Ratios that matter • Relationships that matter • Strategy / timing • Best practices • Dashboarding • CompTIA resources
- 5. How Does it Work?
- 6. How Does it Work? • Credit cards • LOC (line of credit) • Vendor credit • Short term loans • Credit cards • LOC (line of credit) • Vendor credit • Short term loans • Mortgage • Leases • Long term loans • Convertible debt • Mortgage • Leases • Long term loans • Convertible debt • Founders stock • Common stock • Preferred stock • ESOP / SOP • Warrants • Founders stock • Common stock • Preferred stock • ESOP / SOP • Warrants
- 7. How Does it Work? • Credit cards • LOC (line of credit) • Vendor credit • Short term loans • Credit cards • LOC (line of credit) • Vendor credit • Short term loans • Mortgage • Leases • Long term loans • Convertible debt • Mortgage • Leases • Long term loans • Convertible debt • Founders stock • Common stock • Preferred stock • ESOP / SOP • Warrants • Founders stock • Common stock • Preferred stock • ESOP / SOP • Warrants • Paid off in one year • Cover fluctuations • Align cost/ revenue • Paid off in one year • Cover fluctuations • Align cost/ revenue • Paid over years • Investment in future revenues • Align cost/ revenue • Paid over years • Investment in future revenues • Align cost/ revenue • Paid at exit (or drain early) • Accum earnings • Invest in future value • Paid at exit (or drain early) • Accum earnings • Invest in future value
- 8. The Cost of Money Source Interest Principle Cost Credit Cards Highest Flexible Highest Line of Credit Moderate Flexible (should pay down often) Moderate Short Term Loan Low- Moderate High Moderate Long Term Loan Low Low Moderate (low annual) Stock n/a n/a Dilution - winner takes all!
- 9. What Does the Banker Want? • Profitable and thriving customers • Long-term relationship • Minimum risk – high certainty • Mutual trust – up-front honesty • Visibility • Opportunity to help solve problems early • Current (not dated) information • Success stories; referrals
- 10. The Biggest Problems • Surprises – with no opportunity for a fix • Shut down on communications • Personal banker looses borrower to the “troubled assets” department when surprises occur (no fun for anyone) • Customer borrows money for the wrong purpose (e.g. LOC increase for a capital investment)
- 11. Special Cases Solutions: •Personal guarantee from owner •Personal assets as collateral •Higher cost loans •“Alternative Lending” sources •Third party investor (provides investment and guarantee on loans) High-risk Situations •Service Company – no long- term assets •Extreme peaks and valleys •Revenues on down trend •Industry that is struggling •Company with history of losses •Company that is highly reliant on a single expert
- 12. Key Concepts • A company with no debt has no leverage • A company with no debt works harder to keep up with competitors that have appropriate debt levels • A company with excessive debt often cannot grow fast enough to solve the problem; austerity is often the only way out • Too much debt will crush a company OPM - Other People’s Money (pronounced “opium”) can be addictive
- 14. Financial Strength Metrics Working Capital = Current Assets – Current Liabilities Target Rate = 1.5 [average across industries, some industries different] Target Minimum = (1.5 x Current Liabilities) – Current Liabilities Example: Current Assets = 100 Current Liabilities = 60 Working Capital = 40 Target Minimum = 30
- 15. Healthy Scenarios • Goal is to get above Target Minimum • Understanding “health” means tracking trends
- 16. Unhealthy Scenarios • Falling below or being below Target Minimum is fundamentally unhealthy • Understanding “health” requires trend lines
- 18. Strategies and Timing When should you repair your roof? When is the repair most urgent?
- 19. Thinking Ahead Planned •Normal fluctuations •Expansion •Investment •Acquisition •Merger Unplanned •Economic downturn •Competition •Technology shift •Opportunity •Disaster •Health surprise It takes time to get ready; All scenarios benefit from a strong financial position
- 20. What are Your Trends • Growth • Margins • Working Capital • LOB Performance • ROI • Asset Performance • Staff Contribution
- 21. Get an Advisor (Coach) Recommended role: •Facilitate monthly review process •Build structure and process •Keep focus on priority issues and opportunities •Help solve specific problems •Support accountability
- 23. Dive Deep – Dive Quickly
- 24. Monthly Process 1. Set Goals Establish Plan vs. Actual 2. Track Trends Adjust to hit goals 3. Align Team Share to build understanding and commitment
- 25. Tips • Your accounting or goals don’t have to be perfect, start and adjust • Get help (advisory board, experts) • Force accountability (peers, associations) • Manage/borrow cash as one of your top goals • Get your team involved! (screen shots of dashboard) • Dashboarding makes it easier
- 26. CompTIA Benefit: Free Financial Report See your trends, financial strength and working capital Free Financial Consultation CompTIA members get consultation with Financial Expert (each with IT expertise). How? •Email: support@corelytics.com •Subject: Financial Strength •Text: Your contact information & your current accounting system type
- 29. Thank You! https://comptia.corelytics.com Contact Frank at – frank@corelytics.com