The promise of royalties provides a way to draw investors into funding license-based businesses. The risk is no greater than if they were buying stock, but the reward comes with extra benefits and returns that can be reaped much faster than with a traditional investment.
Like all gambles with large potential payoffs, venture debt and equity come with equally big risks. But when used correctly by experienced companies, venture debt and equity can act as rocket fuel that enables businesses to achieve many of their goals in much shorter timeframes.
When a small manufacturer gets a major, million-dollar order, but they don’t have the cash on hand to make the goods because their outstanding invoices won’t be paid for 60 days, where do they turn for quick cash? When an inexperienced restaurant owner hires an under-qualified family member to handle the business’s accounting, and that family member makes a payroll tax error that will cost the business its liquor license unless they pay in full within 30 days, how do they come up with money in a pinch?
Wouldn’t doing business be so much easier if CEOs could see into the future? Unfortunately the closest a business owner or leader will ever come to having a crystal ball is establishing a strong, fact-based financial model. Not only do these models provide CEO’s with the best possible view into their financial future, they are also imperative when attempting to secure additional capital. No banker, loan officer or investor will sit down and have a meaningful discussion with a business owner who doesn’t have a financial plan.
A financial model is a set of assumptions about future business conditions that drive projections of a company’s revenue, earnings, cash flows and balance sheet accounts. In practice, we use financial model in a spreadsheet form (usually in Microsoft’s Excel software) to forecast a company’s future financial performance.
Are you familiar with the term “pre-bankable”? Many business fall into this category, meaning that either they haven’t been in business long enough to qualify for traditional bank financing, or they can’t qualify because of bank underwriting requirements. It’s no secret that banks have not been a source for small business lending for some time now, and unfortunately, change isn’t just around the corner for many deserving businesses.