Creating the right mix of equity and debt

Financing a small business is not an easy task and it can take a lot of time to gather the documents you need in order to convince a lender to offer you a loan. Once you have the money, you need to continue working on your company's finances in order to make the right mix of debt and equity. Your business finances will focus on cash, value, and risk and you must be able to properly manage them or face serious problems for your organization.

Your strategic plan for the company will have a large impact on your debt to equity ratio. It helps you to understand where the business is going and what needs to be done in order to reach these goals and objectives. Keeping track of your business finances will allow you to understand where your company is at and will allow you to know how much money you need to ask for when you are seeking to expand the business or to purchase machinery or equipment. Financing the business needs to come from some of your personal investment but a large majority will come from investors and banks.

The valuation and risk of the business will show up in a way that helps investors to understand if they should consider investing. They will be able to value the business based on your low debt ratio and to see you have plenty of equity that keeps the business running. Typically private equity in the business averages around 20-30% of the business. You will have about 3-5 year contracts with all of the investors and they will have a large majority of ownership in the company. You must then leverage the other percentage of your financing needs with your banks or with your personal investment in the company.

Long term debt, short term working capital and equipment financing will typically make up the rest of the investment in the organization. You must have a strong cash position in your company in order to keep it running effectively. A commercial loan broker can help you with the investment portion and may be able to make it much easier for you to find good loan or leasing option for your company. You need to shop around for the best deal out there in order to satisfy your business needs.

A strong cash position in your company will help to reduce any type of stress that may be on your cash flow. Using cash flow projections help you to know where your organization should be at and what you need to do in order to ensure it can meet these expectations. For businesses about 60% of debt will be healthy debt for the organization. You may have credit cards combined with short-term and long-term debt. Debt financing for the organization is tricky as you do need to focus on understanding your company's credit worthiness and to ensure that you have good credit to afford the loan and the cash flow to pay for it. Having a mix of unsecured and secured debt is a great way to run the organization and to ensure that it will be able to run successfully.

The cash flow statement is an important document you will need to use for your organization in order to see what your monthly cash flow projections are and to know how much money your sales team needs to bring in and if you should put additional pressure on your collections department to gather money you are owed. For long term growth you need to use short term capital that will assist you in expanding the company. Matching the financing is a great way to understand your company's position and to look stronger to investors that are considering an investment in your organization.