Banks and investors are anxious to provide financial backing for your company's growth. Yet they have to make the connection between the opportunity you're focused on and the details of how your model converts that opportunity into regular monthly cash flow. "When we sit down with company owners to talk about funding growth, I want to see a defined repayment source with an eventual exit strategy," says Ken Jacobsen of the Arroyo Grande, California-based corporate lending division of MidState Bank & Trust. "Your management team's experience combined with an identifiable comparative advantage offer a solid foundation upon which to make your funding pitch. But having a great business model solidifies the next crucial step of mapping out how revenues happen, where profits come into the picture, and at what level of customer-adoption the enterprise becomes profitable."
So the next time you outline a great idea for increasing your market base, take on a key strategic alliance, or augment your product-service line to broaden your customer appeal, be sure to formulate the crucial metrics that make your scheme workable. When you finally land a meeting with a potential funding source, that business model will ultimately demonstrate your credibility and expertise, and you'll significantly improve your chances of securing the funds your firm needs.
David Newton is a professor of entrepreneurial finance at Westmont College in Santa Barbara, California, and has consulted for more than 100 companies since 1982.
David Newton is a professor of entrepreneurial finance and head of the entrepreneurship program, which he founded in 1990, at Westmont College in Santa Barbara, California. The author of four books on both entrepreneurship and finance investments, David was formerly a contributing editor on growth capital for Industry Week Growing Companies magazine and has contributed to such publications as Entrepreneur, Your Money, Success, Red Herring, Business Week, Inc. and Solutions. He's also consulted to nearly 100 emerging, fast-growth entrepreneurial ventures since 1984.