Innovation funding strategies
Planning growth involves using financial and operational strategies to ensure your business has the people, funds and resources to achieve its commercial goals.
Businesses that have successfully commercialised new products and services have the following characteristics:
Salary costs can be up to 70-80% of business costs. Use casual and part-time staff, contractors, trainees and apprentices supported by government incentives, while the founders of the business accept low salaries themselves.
Leasing expensive equipment and office space
There are a wide range of taxation and business reasons to lease expensive equipment. Money not tied up in expensive equipment is then available to fund core business objectives.
Encouraging timely payments
See that customers pay you quickly and then thank and reward them for doing so. Seek 14 days rather than 30 days for payment. Develop good relationships with key suppliers. Establish lines of credit and keep suppliers informed about the growing success of the business. They have an interest in seeing you succeed because as you grow, they will also grow.
Seeking equity finance
The equity finance business has grown considerably in Australia over the past decade. These individuals or venture capital companies are willing to take equity in businesses which they believe will provide a good rate of return on their investment in 3-5 years. Business angels are another source of equity finance.
Seeking government or university funding
Government funded programs are available to help commercialise new technologies and innovations.
Seeking strategic alliances
These relationships serve to benefit all partners in the alliance. Informally, the alliance could involve the sharing of ideas. More formally, businesses could jointly fund research and development that are useful to all partners. Many strategic alliances are informal, and are based on trust and good friendships between key people in the alliance partners. They look to the longer rather than shorter term.
An initial public offering (IPO), or listing on a stock exchange, is the long-term goal of many startup businesses. It is a complex, expensive and lengthy process. If the IPO is successful, it provides access to a lot of interest-free capital to fund business growth. It is also a way for business founders, venture capitalists and investors to harvest some of their investment in a successful enterprise.
The following financial documents are necessary and demonstrate a level of competency with potential investors:
- financial objectives of the business
- financial forecasts
- cash flow forecast
- projected profit and loss statements
- projected balance sheets
- capital forecasts
- break-even analysis
- various ratio analyses of performance and liquidity
- investment strategies
- performance measures.
Remember, the financial plan is part of the business plan. In order to ensure that your financial plan is realistic and appealing to potential investors, it should meet the following guidelines:
- Be realistic. A potential investor and partner will always look at the worst-case scenario. You need to be realistic about the market response to your product or service.
- Be clear about your assumptions and projections. Your financial plan must be based on clear and valid assumptions. The financial plan is linked to the marketing plan. The marketing plan with its market research should provide a strong case for the assumptions and projections being made in the financial plan.
- Use spreadsheets sparingly. Use a limited number of spreadsheets that add weight to statements about the potential market, and the company's capabilities to compete successfully over time. If it is highly successful, a new business will take 3-5 years to reach the sales performance of its best competitors.