Succession Planning – Part 14: Where Do You Go For Money?

 Another major problem in managing a family business is that of obtaining money for growth. Generally speaking if the company is profitable, you can get funds from your bank. Here are some ideas on Where Do You Go For Money regarding how a small business can generate operational/growth funding.

But when the growth is substantial, a company often outgrows its local bank. When you see the prospect of expansion looming ahead, the managing relative should begin to plan for it. You will need to consider techniques for financing, such as the following. Planned financing may be a combination of these items:

 (1)  Taking out a mortgage on the company’s building.

(2)  Asking suppliers to extend credit on purchases.

(3)  Factoring the company’s receivables and inventory financing.

(4)  Borrowing on a note basis from friends.

(5)  Borrowing the cash surrender value of relatives’ life insurance policies.

(6)  Contacting an insurance company for a long-term loan.

If the business is a small corporation, the following techniques also offer possible sources of money:

 (1)  Selling a portion of the stock to the company’s employees for cash.

(2)  Selling some of the stock to another company for cash. In a merger, you can use the credit of the larger company.

(3)  Contacting a regional investment banker who may privately find a lender, using some of the company’s stock as collateral.

(4)  Contacting a national investment banker who would underwrite some of the company’s stock. This would be “going public”.

 Effective budgetary controls are important in seeking growth funds. Such controls help the managing relative to determine the company’s needs. Lenders also regard them as evidence of good management.

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