SARASOTA, FL / ACCESSWIRE / November 11, 2021 / Most entrepreneurs require outside investment or financing to keep their businesses operating smoothly and to take advantage of expansion opportunities, says Eric Baird, founder of MyUS.com. The key is to know when to seek financing. Eric Baird offers these tips on when entrepreneurs may need funding.
Startup Costs Exceed Expenses
A successful startup requires seed capital, and many owners can or don’t want to risk their own personal money to finance the business. Seeking investors or loans may be a good option for initial funding, Baird says. When seeking funding, entrepreneurs need to make sure that the costs and expenses are clearly laid out in their business plans and provide a realistic forecast of when the business will break even. The plan also should list any assumptions made in the forecast.
An Opportunity to Expand
Successful expansions involve careful timing. Sometimes the market is right for growth, and customer and market research tell an entrepreneur that people need their service now. Or, the company has received a large order and lacks the equipment and staff to fulfill it and continue to supply other regular customers. In situations such as these, the time is right for expansion. However, in many cases, the company is failing to generate enough revenue to cover the costs of continuing operations and expansion. Additional capital is needed.
The entrepreneur determines exactly how much capital they need to fulfill the large order or expand in the market. They then look for the best option to obtain that capital. In cases where customer need is driving the expansion, the opportunity cost of not expanding may well exceed the costs of debt or obtaining an investor, says Eric Baird.
Business is Seasonal or Cyclical
Some businesses, such as hotels, restaurants, and some retailers, have high customer demand during certain seasons or economic cycles, but lower demand at other times. Many of their expenses, such as the rent or mortgage on their property, utilities, and basic staff, are the same regardless of where they are in the demand cycle. Also, these businesses often need to hire staff, make improvements, or buy inventory in preparation for busy seasons before they receive any revenue from the season. These businesses may benefit from credit lines or investor money to provide working capital during these challenging times, Eric Baird says.
Buying Property
Businesses ultimately need to move out of the owner’s basement to grow. Often, when entrepreneurs evaluate the cost of renting facilities vs. buying them, they conclude that buying real estate is a better value in the long run, Baird says. Purchasing real estate almost always requires some form of financing — either debt, equity, or both. That said, Baird also emphasized the importance of entrepreneurs focusing their time, effort and energy on their business and the opportunities in their industry. There is an inherent opportunity cost associated with focusing one’s efforts on these types of real estate investments, rather than their core business.
Buying Out a Partner
Sometimes partners differ on the future direction of the business and cannot resolve their differences. One partner may want to buy out the interests of the other partner. Such a buyout often requires more cash than the other partner may have at that time. The partner can apply for a loan for the buyout or seek investment from another partner who agrees on the business’s direction, says Eric Baird.
A Synergistic Company Is Up for Sale
Companies sometimes have an opportunity to acquire a competitor’s product and customers to increase their customer base. At other times, the company may have an opportunity to acquire a supplier to guarantee access to raw materials at reasonable prices or to buy a company that offers other synergies. Acquisitions and their subsequent integration into the company require a considerable amount of capital. If the company is genuinely a good fit, however, the potential profits from the acquisition will far outweigh costs associated with a loan or will provide a high return on investment, says Baird.
Eric Baird founded MyUS.com in Sarasota, Fla., in the 1990s and grew it to a $200 million company by 2012. He also was named Entrepreneur of the Year in 2009. Baird now has founded a new venture, Baird, Inc., which provides growth capital to high-potential businesses and operating capital to more established ventures secured by existing assets.
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SOURCE: Baird Inc.
