The intention to found a company, to further expand a business or to take over an existing company is usually accompanied by costs that start-ups or entrepreneurs cannot or do not want to bear alone. Investors such as development banks and investors have therefore set up their own programs and funds for various financing reasons to support start- ups and entrepreneurs. In order to access this coveted capital, a thorough determination of the financing requirement and its presentation in a professional business plan are required .
This article explains the five steps to successful funding .
Step by step to successful financing
The path to financing is usually long and lined with obstacles, but there are important steps and milestones that can significantly increase the chances of successful financing. There are five steps in total, which show the way to successful financing in two phases. The financing requirement is determined in the first phase, and the required capital is acquired in the second phase.
Determine financing needs
Anyone founding, expanding or taking over a company should always be aware of the three pillars of a well-running company:
- The business model : How is revenue generated and what revenue streams are there?
- The financial plan: Which payments go into the company account and which are deducted from it?
- The business plan: Which elements ensure the functioning business model and how do they interact?
Step 1: Evaluate the business model
The term business model was popularized between 1998 and 2001. The business model, in turn, is distinguished from the business strategy, since these describe fundamentally different things. The business model describes individual components of a company and their interaction, so it does not refer in any way to the current market situation or competitors.
The business strategy, on the other hand, describes the strategy of how a company wants to assert itself and differentiate itself in the local industry. The latter can be found in a well-developed business plan.
So at the beginning of the determination of the financing requirement, the business model must be evaluated as precisely as possible. The most common business model types are as follows:
Unbundling business models (unbundling-oriented business models): According to the business lexicon, these are business models that combine the three areas of customer relationships, product innovation and the provision and maintenance of infrastructures in different forms. For example, these companies include Deutsche Telekom and Swisscom.
Long-tail business model (niche product-oriented business model): This business model harbors superior logistics that enable a company to offer normally unprofitable niche products. These would be companies like Amazon.com and Ebay.com, for example.
Multi-sided platform business model : This business model reflects a platform that allows two or more independent groups to interact. The value for a single group is generated by the presence of another group. One such company is Google.com. The user groups are therefore advertisers and search engine users.
Freemium business model : This business model describes a standard service and is offered free of charge. For extended functionalities, customers must take out a paid subscription. One such company is the Xing Online Community, for example.
Tied products business model : A business model in which an inexpensive or free initial product or service motivates the use of future paid replacement products or services. For example, these are products and companies such as Gillette and HP color inkjet printers. Also known as bait and hook or razorblade business models.
Open business model : This model is based on cooperation, which uses external experts to create and secure value. One such company is Glaxo Smith Kilne.
Overall, the business model represents the logical connections between the business activities of a company and the essential elements and their systemic relationships are presented in simplified form (Bieger 2011).
Step 2: Create a financial plan
Once entrepreneurs have become clear about the business model at hand or have further developed it, it is time to draw up a financial plan. The financial plan is usually drawn up for a period of three to five years and can still be corrected and adjusted at any time. Depending on how complex the present business concept is, it may be necessary to reduce the planning units from annual planning to monthly, weekly or even daily planning. Financial planning is therefore an essential process that monitors and forecasts account movements. Its contents include presenting the cash surpluses and thus the liquidityof a company. The goal of well thought-out financial planning is that a company can always meet payment obligations and production demands. This finally ensures the successful continuation on the market.
In order to calculate the financing requirements, long-term financial planning is required, the essential component of which is the strategic orientation of the company and thus the determination of the long-term capital requirements ( capital requirements plan ). A long-term financial plan should have the following characteristics:
- Typically three to five years
- Contains financial decisions that require detailed planning due to their long-term effects.
- A profit and loss account is used as a basis for meaningful financial planning.
- Causes for an excess of funds or underfunding are shown, which can now provide information about the financing needs of a company.
Financial planning usually shows that there is a lack of funds at a certain point in time when a company is founded, expanded or acquired. This is usually the case for founders when the company enters the market and has high development, marketing and personnel costs with low income. When expanding a company, financial support for investments is usually used to protect the liquidity of the company accounts. In the case of a business takeover, most of the borrowed capital for the payment of the purchase price is required directly for the takeover.
Optimal, long-term financial planning consists of the following elements:
Sales planning : The sales plan summarizes which sales will result with which products and which customers at the specified prices. In order to be able to calculate valid planning, one should not ignore how the sales figures have developed in the past.
Cost planning : In addition to sales planning, a cost plan should also be drawn up. Many types of costs are fixed and can be planned well in advance:
- personnel costs
In principle, the cost structure should reflect the orientation of the business strategy. This means that when planning business expansion, personnel costs increase or planned investments for increasing a warehouse are taken into account in the cost planning for the future. For other types of costs, such as material, a comparison with the sales figures must be made. If, for example, a sales increase of 10% is planned here, the material costs often increase to a similar extent. Separate and more detailed planning should be carried out for advertising and marketing as a cost type: First of all, concrete measures such as trade fairs or internet advertising are planned and priced, i.e. the costs incurred for your own operation.
Further types of costs only arise once other partial plans have been calculated. For example, the amounts of depreciation can only be recorded when the investment plan provides precise values.
Income statement: Now sales and cost planning are transferred to the income statement. The income statement compares the sales generated in the respective period with the costs incurred.
Investment planning: Investments are a cornerstone for the further existence of a company, in which a lot of money flows out of the company with every investment. Investments should therefore be planned with the expected financing requirements. This should be structured using categories such as machines, vehicles, IT. It should also be determined when the investment should be made so that the required money can be made available.
Liquidity planning: All plans that have been created so far are completed by the liquidity planning . Liquidity planning includes the monthly breakdown of the items already listed and the items that have not previously been taken into account. This includes the following items:
- amortization payments
- shareholder withdrawals
- back taxes and advance payments
- License Payments
- Sales tax liability
- License Payouts
- shareholder contributions
Capital requirements planning: In addition to the work steps mentioned, the capital requirements must be finally planned by first considering the liquidity planning. Will the account balance ever fall below the minimum value of the liquidity buffer? As a rule, the liquidity reserve amounts to the volume of working capital for three months. At the same time, a decision must be made as to which parts, e.g. B. Equity and borrowed capital should be used.
In order to create a financeable financial plan, you need a certain skill in dealing with spreadsheet tools and economic know-how. If you are unsure as a founder or entrepreneur, the creation of a financial plan should always be entrusted to a professional. Because if gross mistakes are made in the planning, there are consequences that in the best case only cost a lot of money or in the worst case result in the insolvency of the company. Business start- up advice is the first address here.
Step 3: Create a business plan
Once the business model and financial planning have been created, the knowledge gained can be combined in a business plan. These are supplemented with the topics of corporate strategy, marketing mix , competition and industry analysis. A separate chapter, including sub-chapters, should be devoted to financial planning. Here, too, it is worth getting feedback from a counseling center if you are unsure .
Step 4: Identify financing partners
If you are now ready and have identified the financing requirement, the next question needs to be answered: Who is the right financing partner? Do you have a business model that grows organically and is interested in a one-off cash injection? Then a state-subsidized bank loan with good interest rates should be considered first, e.g. B. the KfW start-up fee . If the company is a scalable business model that requires regular investments of large sums, the first step should be towards business angels and venture capitalists.
Step 5: Addressing the financiers Investors vs. banks
Once you have decided which volume and which type of financing is to be acquired, the documents relevant to financing must be prepared in a way that is appropriate for the target group. Banks pay significant attention to other key factors and KPIs compared to investors. Accordingly, when finalizing the documents, advice and feedback can always be obtained from specialist departments. The founder should always keep in mind that approaching banks and investors is usually a once-in-a-lifetime opportunity. Once you have made a bad or unprofessional impression, the investor is usually “burned out” and no longer interested in viewing further documents.
Would you like professional support in developing your business model or creating a financial plan? Then simply fill out the consultant search form . Incidentally, in most cases 50% of this support is subsidized by the state.