When Your Venture Absolutely, Positively Needs New Capital.

Financing depends on everything the CEO knows, ghostwritten by the CFO

By Walter Simson

I’ve argued that a business transformation takes three steps: first, a plan (seasoned with ?a heavy dose of strategy); then, a well-organized team; Third, you need financing to support your dreams in the long-term.

You’ll want to ensure the company has enough cash to move forward and that capital comes at the appropriate price. Obtaining financing validates the entire transformation process. If the company does not achieve its capital raise, the entire effort is at risk.

Let’s put that bit more forcefully. Without appropriate capital, the company will fail.

How do you absolutely, positively assure the financing will come through?

1.??????? Make No Small Plans. Produce a good plan, with all the bases covered. It must show the how the company reaches its declared endpoint. Usually this is profitability and an ability to service existing or new debt. Sometimes the endpoints are milestones associated with the venture world or other private investors. You know what you must achieve. Does the plan get you there?

2.??????? Go All In. Here I mean, in the financial model. The projections should be complete, with monthly P&L, balance sheet and cash flow. And the assumptions should include all the important knowledge in the company. To put that in perspective, the financial model should reflect everything the CEO knows AND everything the CFO knows. Strategy, plans, costs, prices. It is the company’s plan, the list of critical things to do that gets stapled to a calendar and to a financial statement.

3.??????? Show your work. Here I mean your assumptions. If you have some products that are going to experience cost increases or margin declines, show the place, time, and amount of the change. If the staff is going to get a raise, show the date and amount of the increase. Show all the details. Use the power of computers to help describe the details. Nobody especially enjoys showing the employee census with the month of each employee’s raise—but attention to detail shows completeness and a willingness to be open to all the possible questions.

4.??????? Don’t be average. A client recently asked if it would be okay to show average product margins. No! Thinking in averages is what gets you in trouble. The analogy is to a strict diet. Noting all your food intake is great discipline. It breaks down when you don’t report the big ice cream sundae. “On average,” you figure, “it should all work out?” Ha! “On average” is the kind of thinking that keeps people from reaching their goals.

5.??????? Get help. Most companies have someone responsible for the day-to-day accounting. But not all financial execs can do complex financial models. If you suspect the financial aspects of the plan are not going to be effectively communicated, you owe it to the enterprise to find someone who can do the job. There are a lot of resources out there. Find someone who sweats the details on your behalf. Pro tip: problems are easier when you’ve seen them before. Don’t hire someone who’s learning how difficult this is while you watch in frustration.

6.??????? Know your audience. This is hard, because face it, the gal who calls on you for the bank is a salesperson. Her boss is the district head for relationships-another salesperson. The boss reports to a regional head, who reports to the head underwriter. That last person—four levels above the person you deal with—is the decision maker. You’ve never met the decision-maker, but you know them. They’re detail-oriented, time pressed and skeptical. If your presentation has logic, conservatism, support from the data? You will absolutely succeed. Because the decision-makers will do what’s best for you if you speak in terms they understand and value.