Some common-sense guidelines for raising capital

In an ideal universe, companies grow and achieve vital corporate initiatives through ever-increasing cash flow. But the reality for most franchisors, public or private, is that expansions and capital expenditures require an infusion of cash.

Whether the goal is to take over a competitor, build or purchase new facilities, launch a new product, or expand into a new territory, there are only two ways (beyond franchise fees and royalties, of course) to obtain money: take on debt or sell equity.

In deciding which option to choose, important variables include the reason funds are needed, the company's current circumstances, and its style of ownership and management. Accordingly, careful consideration, strategic thinking, thorough planning, and sound decision-making are essential when it comes to financial expansion ventures.

One size does not fit all

Aside from a multitude of microeconomic considerations specific to each enterprise, a constellation of macroeconomic factors enters into the decision-making process. How well is the economy faring? Is the business's industry sector growing? What are the potential direct and indirect impacts of monetary policy?

Sometimes it's easy to get lost in the nebula of marketplace variables and financial complexities and lose sight of some very basic elements that need to be in place before one can go out and raise cash. Here are a few common-sense guidelines that may sound obvious, but are quite frequently overlooked.












Getting the stars to align

The IBMs and Microsofts of the world didn't reach astronomical size with a big bang. They made the stars line up for them by adopting sound growth principles right from the start. Those principles are neither complex nor mysterious. They boil down to simple good business practices revolving around an intelligently crafted plan and a series of smart financial decisions that align each expansion phase in the direction of the long-term strategic goal.

Jeff Stone is managing director of Crescent Fund, a Wall Street private equity consulting and promotional firm that provides corporate capitalization and investor relations consulting services. Crescent Fund manages a private equity fund and invests in private equity investments. Visit www.crescentfund.com.

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