Mark Lyttleton is a professional angel investor and business mentor who supports founders across a broad range of industries, providing comprehensive strategic and financial advice. This article looks at financial structuring, and how it can be critical to a company’s future success.
The financing of any business is critical to growth. Establishing a company is no small endeavour, and many entrepreneurs find that much of their time taken up by the operational side of the business. Nevertheless, having robust financials in place is crucial, freeing up leadership’s time for strategic activities, as well as providing headspace to concentrate on products, customers, and marketing the company. The attached infographic outlines five of the biggest priorities for marketers in 2023.
Founders are typically inspired by the notion of finding and delighting customers with their innovative products, and providing solutions to real world problems. Entrepreneurs often relegate money management down the to-do list, until it suddenly becomes an urgent priority to fulfil an order, or simply to keep the lights on. A healthy balance of cash, debt, equity and other instruments provides a business with enhanced flexibility through positive cashflow. The attached PDF explores the topic of cashflow in more detail, exploring tactics to manage it effectively.
Companies need to be adequately financed to weather operational fluctuations, ensuring that the business can survive market challenges, and grow and thrive when things are going well. Capital discipline, ensuring that spending decisions are carefully considered, is critical to business success.
Financial structure is important to businesses of all ages and sizes, but particularly businesses experiencing a phase of rapid growth. In such situations, founders need to be agile in order to avoid their stake in the business being diluted too quickly during the early stages of growth.
The right financial structure essentially enables the business to continue to run efficiently and smoothly without the risk of burning out. The right balance enables the business to operate without incurring excess risk or cost.
In order to identify the optimal financial structure, financial managers need to weigh up a range of factors, including growth potential, profitability expectations, potential for acquisitions, and appetite for risk and control. Companies at different stages need different amounts of capital to grow.
Where founders believe the financial structure of their business may be out of kilter, they may wish to consider hiring a fractional CFO. The embedded video provides more information on fractional CFOs, and how they help diagnose financial structuring problems and get businesses back on track.