Companies at different stages of development seek methods to increase their competitiveness through various investments. Acquiring development capital is, therefore, the foundation of effective operations and continuous improvement of offerings. Modeling financing tools for companies is an important area on the path to expanding market reach and improving profitability.
Maximizing the market value of the enterprise directs the attention of management to the operating and investment budget. Depending on the financial model we choose, obtaining external capital will follow a slightly different path. Financing strategies for companies result from the analysis of specific cases and involve specialized business know-how.
We present the most important steps that will enable the selection of the optimal source of funding for development.
Creating a Strategic Development Plan
First, we need to determine how we will use the funds received. Which areas require immediate investment? What investments should be implemented first? The plan and investment budget form the foundations for later fundraising.
Creating a strategic development plan:
- is a strategic plan for the use of funds, most often for the development of the company;
- also serves as the basis for every capital acquisition process.
Preparing a Financial Model
The next milestone on the path to obtaining funds is a detailed financial model. This is a crucial tool focused on forecasting the future condition of the company and identifying risk factors. A reliable and accurate model organizes the corporate finance area and allows verification of the business assumptions of a given entity.
Tools that facilitate the preparation of a financial model:
- the most common tool at this stage is a spreadsheet;
- it helps create a financial model of the company, reflecting the business reality with numbers;
- this type of spreadsheet is the basis for all subsequent calculations, assumption analysis, and results.
Preparing a Detailed Investment Budget
Effective fundraising for companies involves the need to develop a budget. This stage serves as a kind of business card for investors who evaluate the company before making a decision to invest capital. The investment budget clearly shows the priorities of the management and how it intends to achieve profits. The framework of the financial plan supports discipline and allows for continuous monitoring of cash flows.
Preparing a detailed investment budget:
- this stage follows the determination of strategic objectives and the preparation of a tool for their analysis in the context of the company’s finances;
- an investment budget should be introduced into the financial model, which will be communicated to investors at a later stage;
- using a spreadsheet, you can prepare various versions of the budget and easily modify and control its implementation in the future.
Forecasts for Companies Using Subsidies
EU institutions prepare cyclical support programs for entrepreneurs in selected industries. Acquiring financing in the form of grants or preferential loans requires providing an investment forecast. The budget and financial model of the company are also useful when the company wants to model the benefits of a potential investment in comparison to continuing development without external financing.
Preparing forecasts for a company that does not acquire capital from external sources:
- this is a significant stage in the case of financing forms that involve funds from EU funds;
- a scenario is considered in which the company does not obtain financing so that the forecasted financial results without it provide context for results analysis along with the investment.
All forecasting activities must be based on solid market realities. It is necessary to thoroughly understand the business environment and predict the variables that will undoubtedly affect the financial situation in the coming years. Verification of the visions created by a financial model is an important component of comprehensive investment analysis and provides a basis for financing the company.
- after preparing forecasts related to the company’s operations, it is necessary to proceed to verify assumptions related to the market;
- verification includes assumptions such as sales volumes, inflation rate, reference interest rate, and the like.
Even the best financial model for a company encounters numerous internal and external threats. The large number of variables affecting the result means that the investment budget can go in many directions. Creating scenarios and developing procedures for each of them protects against unpleasant surprises and allows for preparation for various eventualities.
- follows the most accurate possible verification of internal and external assumptions;
- using the financial model, it is worth introducing various optimistic and pessimistic scenarios;
- to identify potential risks, “crash tests” should be conducted, which can negatively affect the realization of business assumptions in the event of significant deviations from the base assumptions.
Selection of Financing Method
Having completed all the previous stages, we can proceed to select the appropriate financing option for the company. Different methods of obtaining funds are a response to the different goals of economic entities.
Selection of financing method:
- this is the moment to choose the appropriate financing methods;
- this allows for a complete plan for the implementation of the investment, including the capital requirements at its various stages and a full awareness of the risks associated with the project’s implementation;
- the choice of method depends primarily on the schedule of cash flows from investments, potential return rate, risk, and security possibilities.
Financial Modeling and Budgeting – Comprehensive Offer from CFO Consulting
Check out our Financial Modeling offer or contact us directly to get detailed information about professional support when applying for external funding. CFO Consulting will develop a financial model and present various options for obtaining financing for the client’s company. CFO Consulting is made up of experts in their field, for whom FP&A concepts have no secrets.
Build an efficient cash flow model with CFO Consulting and enjoy unwavering operational and investment liquidity.”