COMING UP AT NEXT WEEK’S SILICON VALLEY MANUAFACTURING ROUNDTABLE MEETING!

Options for Growth: Questions to Consider When Seeking Capital

As a manufacturer, you’re probably offered plenty of advice on how to improve efficiency, get ISO Certifications, or find new equipment. But, where do you find the money you need to grow?

It all depends on the circumstances, such as how the money is to be used, how much money is needed, and when it’s needed. For instance, are you constructing or buying a building to expand capacity, entering new geographic markets, acquiring another company, or needing working capital to support revenue growth? All of these situations present different funding paths that will impact your company in very different ways.

Most companies try to use as much bank financing as possible because it is considered the least expensive, both in terms of rate and of avoiding giving up any ownership interest in the company. However, commercial banks are highly regulated and risk-averse, so they may not be able to provide the funds you require. This may suggest seeking alternative financing sources, such as asset-based financing, mezzanine debt, or equity.

Before seeking financing you should conduct an analysis of your company beginning with its current performance, the financing dollars required, the impact additional capital will have on revenue and profit, and an assessment of management, infrastructure, and otherorganizational changes required to accomplish growth objectives. Financing sources will be sure to ask such questions.

At the same time, you need to consider your end goal and the benefit(s) or cost(s) of using non-bank financing. Is your goal to go public, be acquired, achieve shareholder liquidity or, stay private? If you don’t have sufficient capital, can the company survive? Will growing give you a competitive advantage or dominant market position? Are you willing to give up equity in the company and have investors hold you accountable? Can margins support a higher cost of debt?

There are pros and cons with every form of financing. The “devil” is in the details, and what may look appealing on the surface, may not be as good as you think. Always perform careful due diligence on the various sources of funding and different structures presented. And consult with accounting and legal advisors for guidance and insight that will help you negotiate acceptable terms and conditions.

If these are questions you are considering, please join us at the next Silicon Valley Manufacturing Roundtable meeting on Thursday, April 30th at 8 a.m. at Asteelflash in Fremont. (RSVP by clicking on the logo below) I will be moderating a thought-provoking panel discussion with experts on this topic with the goal of helping companies in growth mode understand the different paths and potential implications.