I recently read an article in the New York Times, Selling a Small Business Involves More than Money. In this article, a couple of the business owners who had sold their businesses stated that they would have grown the company more before selling it if they had known about financing. If you are considering selling your business because you cannot grow it further because you lack funds, wait. You will regret selling your “baby”. Sell when you are tired or seeking a new challenge, when you think it’s time to move on, when you believe you have reached the limits of where you can take your business, or when you have serious personal or health issues that do not allow you to focus on your business. Do not sell simply because you don’t have the cash to grow your business and don’t know how to get it. Like so many other things, the “how” to obtaining financing is something you can learn to do or hire someone to help you do.
Funding to Strengthen and Grow Your Business
If you want to strengthen and grow your business to sell for a higher multiple of higher EBITDA (earnings before interest, taxes, depreciation, and amortization – a measure of operational cash flow), you will typically need an equity infusion or a combination of equity and debt. To pursue rapid growth, using 100% debt is typically too risky. You need to channel your company’s operational cash flow back into building and growing your business, not into paying off your loan. However, there may be special debt arrangements such as 100% interest only loans or repayments tied to profitability that provide you with favorable terms that support your growth initiatives. In addition, if you intend to grow through acquisitions, debt financing can be highly feasible if the company you are acquiring has sufficiently strong cash flow to repay the debt.
Identifying Financing Options
If you do not know what kind of financing to pursue or how to pursue it, then you will either need to educate yourself or hire someone. You can use resources such as The Funding Is Out There! Access the Cash You Need to Impact Your Business. Assuming you have a relationship with a business banker, you can talk to him or her about your desires and ask for guidance. You can reach out to a local or regional merchant bank or small private equity fund for guidance and assistance. Depending on your size, industry and growth targets, the latter two may be interested in helping you find the money or investing but, if not, they will typically provide (usually) helpful feedback.
If you find the task of learning about financing too daunting, you can hire a merchant bank, an interim CFO or financing consultant to help you. When seeking an interim CFO, find one who has focused on funding business growth, acquisitions and initiatives, not one who has a strong accounting background. You need a financial officer, not an accounting officer. There are now more CFO firms that provide interim or part-time CFOs to choose from than at any previous time. Reach out to them and pursue the right fit just as you would any member of your executive management team.
For more information on pursuing equity investors, read How to Pursue Equity Investors at http://theresourcefulceo.com/2015/10/how-to-pursue-equity-investors/.