The Three Most Important Aspects to Raising Funding or Finance for your Business Start-up!
Waxing your Business Model
Simplicity is the key to your Business Model and Plan. The most fantastic ideas and plans sometimes never get off the ground simply because they are too complicated to grasp the first time around, leaving the startup despondent at the lack of interest. Funders always look to the accuracy and simplicity of the Model itself, providing any reader or analyst with clear Cash Flow Statements, Income Statements and Balance Sheet Projections.
The inputs that make the model work should also be clearly defined and easy to follow. The Business Plan must make use of the Business Model Inputs and also clearly explain the factors that you have used in obtaining your turnover as well as the break-even turnover when measured against your fixed and financing costs. We suggest that you always make use of NPV, IRR and MIRR. For this to work you will need to estimate realistic Exit values at various time periods.
What metrics are Funders and Investors really after?
Key to the desirability of your business is the IRR and more importantly the MIRR%. It goes without saying that if these metrics are not above the funder's rate(hurdle rate), then you are simply wasting your time attempting to raise any external funding. It is not given, but we would suggest that for a start-up, in particular, you should be looking at a MIRR% that exceeds the hurdle rate by at least 3,5 times and for an existing profitable business you should achieve a minimum of 2,5 times the hurdle rate. The more the better! We suggest that you make use of the MIRR formulae for more accurate returns over a time period of 5 to 10 years. IRR recalculates its own IRR return and sometimes will inflate the actual returns that you are able to derive out of the business. Explained in another way, with the Modified Internal Rate of Return we are able to limit the Investment Rate of your positive cash flows to equal the cost of your debt or equal the interest rate that you are able to achieve when investing the cash. Not with IRR, which will keep calculating as if you are able to continually expand the model at the same pace at which you start.
Riskiness and Break-even of the Start-up Business
A great business is one that can run with or without the business owner's daily involvement. Whilst this statement is not always attainable in the early stages, it is a great ambition for all business owners to get the scalability to such an extent that the business is efficient in obtaining and satisfying its clientele without the constant efforts of the owner. Break-even analysis should be constantly performed by new and established businesses, however, when raising funds for your start-up, the risk of high fixed costs and a consequent high relative break turnover requirement will definitely be a negative. For more information about all our best Practice Business and Real Estate Models, visit our calculator's page where you can download PDF Explainers on all of our Models! https://proppro247.com/calculators