Food, beverage and value-added agriculture businesses need to raise money serially in order to grow. And, they need different kinds of money at different stages of their growth path. And, specific sources of money are often for specific uses, and all of this needs to be documented.
The financial plan of the business should evolve as the business plan evolves and is best when tied to milestones in the business. And, the financial plan should address both sources and uses of financing at the different milestones of the business. Investors and lenders expect this kind of clarity; the more money the business needs, the more rigor they look for in documenting the plan.
Different business model paths have different financial benchmarks, capital requirements and optimal sources of capital over time. Most food companies burn up more of their cash on their balance sheet than on their income statement. A optimized business model intentionally shortens the cash cycle and a financial plan ensures the the enterprise always has enough cash. It is important to pick the business model path as soon as possible and optimize for it.
There are many aspects to putting financial packages together to raise equity and raise debt. Some of those have to do with the actual documentation, plan and financial projections for the lender or investor as well as getting the client ready to intelligently discuss that plan. This includes helping food, beverage and value-added agriculture entrepreneurs:
- Choose their business model development path
- Use benchmark data to do a first estimate of the amount and kind of capital that will be needed to reach break even on a cash basis
- Develop a baseline Sources and Uses of financing table
- Develop the proforma projections of the Profit and Loss, Cash Flow, and Balance sheet
- Match the capital uses and amounts to best sources of capital
- Update the sources and uses table as the proforma is developed and fundraising activities unfold
- Package the financing request
- Raise money, grow, do it again, raise money again
Entrepreneurs also often need help fixing all of the things that negatively impact their credibility with a lender or investor before they talk to them. This includes:
- Financial statements that don’t make sense
- Disconnect between actual projections and proforma
- Inability to identify a basis for defensibly unique competitive advantage – i.e. why is the business going to work
- Inability to succinctly describe their business model and what they need the money for
- Developing a well-organized online sharing tool that includes all of the documentation needed by an underwriter
- Where an equity raise is involved, making sure all of the legal docs are done and in the online sharing tool
