Case Study
A broadcast media company believed they needed a significant capital infusion to support their growth plans but were uncertain when and how much capital would be required. It is not uncommon for a company to run into this issue if they do not have a strategic business plan and budget in place that forces them to set, measure, and reach their goals.
We generated a detailed five-year financial projection model. After developing a strategic business plan and budget, we worked with the company’s management to create a financial model that estimated the expected revenues and expenses the company would incur over the next five years. These projections incorporated new products and service offerings, as well as additional employee hires.
We then identified capital requirements. From the projections, we were able to identify all the periods in which the company’s cash balance would become negative. Additionally, the model was able to calculate the total capital required to avoid running out of cash.
We then identified capital requirements. From the projections, we were able to identify all the periods in which the company’s cash balance would become negative. Additionally, the model was able to calculate the total capital required to avoid running out of cash.
We determined they would require additional capital even after reaching profitability. Often profitability can be achieved before the company becomes cash flow positive. This is a common occurrence for many early-stage companies or companies in a hypergrowth mode. To support their rapid growth plans and not run out of cash, we determined the company would require additional capital to last until they become cash flow positive.
The financial model and projections identified the company’s capital requirements, which was 50% higher than they had initially anticipated. Knowing the company’s actual capital needs gave the owners the correct figure to use when raising the capital required to support their growth goals.
Without an accurate projection, the company would have faced some very trying times and may have had to make tough decisions. This probable outcome would have inevitably changed the course of their business, and their ability to grow and reach their goals, or worse, would have caused them to closed their doors.
Understanding your capital requirements is crucial for the success and sustainability of your business. At Signature Analytics, we’ve identified several best practices to help you manage your cash flow effectively and maintain a strong equity position with financial institutions and investors.
1. Monitor Cash Flow and Analyze Projections
Regularly monitoring cash flow and analyzing projections is vital for your business’s success. Keeping a close eye on your cash flow enables you to identify potential issues early and take corrective action to ensure continued growth.
2. Understand the Importance of Cash Flow Management
According to a study by Jessie Hagen of US Bank, 82% of businesses fail due to poor cash flow management or a lack of understanding of cash flow. Recognizing the critical role cash flow plays in your business’s health can help you prioritize and implement effective cash flow management practices.
3. Maintain a Strong Equity Position
Knowing your capital requirements allows you to maintain a stronger equity position with financial institutions and investors. A clear understanding of your capital needs can help you secure funding and support without sacrificing too much ownership.
4. Avoid Asking for Too Much or Too Little Capital
Requesting too much capital can lead to selling more equity ownership to new investors than necessary. On the other hand, asking for too little capital can be time-consuming and distract management from their operational responsibilities. Strive for a balance that aligns with your business’s actual needs and growth potential.
5. Plan Ahead for Adjustments
Be proactive in your planning and anticipate any adjustments that may be needed to maintain healthy cash flow. Early identification of potential challenges allows you to make timely decisions and minimize any negative impacts on your business.
6. Ensure Reliable Cash Flow Management and Reporting
Cash flow is the lifeblood of any small business. Implement reliable cash flow management and reporting practices to keep your business running smoothly and maintain a clear understanding of your financial position.
At Signature Analytics, we’re here to support you in managing your capital requirements and ensuring the long-term success of your business. Reach out to our team of experts today to learn more about our tailored financial solutions and how we can help you achieve your goals.
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