It knows when you should start looking for funding. Scaling your business is one of the most challenging decisions you will face. While not every company goes through this process, most will, at some point, need to bring investors on board.
Most successful businesses don’t live in the moment. They are forever crunching the numbers to determine how they are growing; This number is likely to change over months, years, and decades, including being honest about how much you think you will earn and what you need to spend to reach your goal.
By forecasting regularly, you’ll take the first step toward establishing capital, not just when you think you need it, but when you feel you need it.
When to seek funding?
If you run out of cash before the end of your forecasting period or your margins are so tight that any drop in customers could put you in trouble, you need funding. A good general principle is to have at least six months’ benefit of fixed costs in your pocket.
It’s also worth getting funding when your ambitions require networks and knowledge you don’t have. Remember to underestimate the value of having like-minded investors buy into your vision, and never be afraid to turn down a high number from an investor you don’t think is a good fit.
If you’ve already got a buffer, or you’re in an industry where growth is notoriously slow, but the value of this growth is high, you can postpone fundraising – sometimes for years. You should never seek or accept funding if you are doing it to tick a box.
Remember that it is always early enough to get funding. So for every early-stage investor, a seed investor is sitting on the other border of the coin.
You need funding; what next?
Remember that funding is not a gift. It’s an investment that your backers need a return on—asking too much or being blindsided by recommendations that sound too good to be true can be just as detrimental to your business as not raising enough.
You can always add more later if you need. If you have a track record of forecasting accurately and using capital as efficiently as possible, you will always be an attractive bet for investors.
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