Get ahead of your capital needs

A strong performance record may not be enough to fuel your vision if you don’t have sufficient capital. A capital plan, carefully tuned to your company and industry, is vital to secure the funding your business needs.

Companies often lack adequate financial planning built around a solid capital plan. According to Truist research, only 48% of middle market businesses have a 5-year plan.^{Disclosure 1}

Do you have a plan to secure the capital your company needs to achieve your financial goals?  Follow these three practices to create a capital strategy.

Build a capital plan.

What are your short–term and long–term goals for your company? A clear vision of your business’s capital requirements will help you identify when and where your company needs financing to operate and expand.

Your capital plan should match your overall business strategy. Be sure to include projections for sufficient cash flow to help cover seasonal cash variation, slow–paying customers, and unexpected expenses.

A strong capital plan considers:

• Working capital - cash tied up in your day-to-day operations (accounts receivable, inventory, and accounts payable).
• Cash flow - manage seasonality or industry volatility to ensure your business always has the cash it needs to keep operations running smoothly.
• New capital requirements - major capital investments required to maintain and enhance technology, buy equipment, or secure real estate to meet future needs.

With your capital requirements in mind, you can focus on securing the funding your business needs.

Secure funding.

Do you need to expand your business? Improve technology? Purchase equipment? Develop new products?  You may require additional capital if these initiatives exceed your current cash flow. Your capital plan should clearly present your financial requirements and target the best credit sources.

Make sure you cover the financial requirements for each stage of your company’s development and optimize your funding events to keep transaction costs low.

Your options may surprise you. Start by reviewing your existing credit sources. How can your business use capital from these resources? Consult your advisors on ways to secure funding from other sources that might align with your capital plan.

Keep it fluid.

Update your capital plan periodically to reflect changes in your market and industry. Evaluate your current financial resources. How can you use new capital to expand your business? 

Let’s say you have no draws on your existing line of credit. Can you use that funding to expand your inventory and open a new business location? Does the current real estate market make purchasing a facility with a commercial mortgage loan more sensible than renting space? Is technology improving quickly enough to justify leasing rather than purchasing equipment?

Incorporating considerations like these into your capital plan will help keep your business on track.