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With over 30 years of experience working with thousands of companies, Corey Keith of Keith & Associates at Turner Valley, Alberta has helped many clients achieve business success.  He distills his top financing tips down to six key insights to help agri-businesses realize the importance of knowing who you are and what you need.

 1) Target your approach.

Do you need a cash flow loan or money for expansion?  There can be a difference says Keith.  “There is a difference between an investment and a loan.  Investors are in a different business than banks so you have to know what you require,” says Keith.

Banks are primarily in the business of loaning money against security.  If you want a loan, you have to show the bank that you can repay the loan and you need cash flow to do that. 

Keith explains that an early start-up company may not be profitable enough to obtain a loan to expand, and instead of applying to a bank for a loan, what they really need to do is find an investor to provide the capital for expansion. 

Banks are, at times, viewed as barriers to financing, but they are in the business of high-volume low-risk lending.  In this environment, they cannot afford many bad loans.  Conversely, an investor is willing to take more risk for a higher return, and they look for enough big winners to pay for the investments that do not work out. 

“Understand the difference between an investor and a banker, and your company will be more successful in attracting the type of financing that you need.”

2) Place the order

Keith has seen many business plans that fail to hook the investor or banker right off the start.  Too often the business plan is being used to obtain an investment or loan, but doesn’t state it right up front. 

Within the first page of the business plan, the ‘order’ should explain how much money the company is looking for, what it will be used for, how it will benefit the company, and how it will be paid back. 

“If the company is looking for $5000, or $500,000 or $5 million, that should be made clear right up front in the business plan because that amount provides context for everything else.”

3) Be realistic

Whether a business is approaching an investor or a banker, the approach is all about credibility and doing what you say you will do.  Coming in with crazy sales projections or expenses one-third less than the industry average doesn’t work. Don’t expect to open a storefront and have $1 million in sales in the first week. 

“Those are deal killers.  You will have absolutely no credibility,” says Keith.  “Your financial plan should be all about convincing them that you are credible.  That includes identifying possible risks and how you will mitigate those risks.  If you don’t talk about the risks, they will wonder what else you might have missed and that will hurt your credibility, too.”

4) Know your market

Without a market for your product, there is no company.  The biggest mistake many companies make in their business plan is to just look at data, which doesn’t dig deep enough into the numbers to make it relevant to the company’s market. 

For example, the market for the product might be a $20 billion global industry, and the business plan might call for capturing just 1 percent of the market.  The trick is how to capture that 1 percent. 

“Those kind of market numbers are almost irrelevant.  There is no relevancy unless you can provide details on how the company will get a piece of the market.”

Keith says companies have to show financiers how they will capture sales through product differentiation, target marketing, sales and distribution, and budgeting for advertising.  Many business plans don’t do that, which is sure way to turn off investors.

5) Partner with your banker and investor.

Keith says that many people can view their financiers as adversaries.  He says companies should take the opposite viewpoint and work with investors and bankers to ensure long term financing is available to keep the company stable. 

What banks ask for in fiscal reporting is based on years of experience. He cites the debt-to-equity ratio as a good example of what bankers like to keep an eye on.

“Keeping track of your debt to equity ratio isn’t just good for the banks, it also provides a window on the stability of the company.” 

For a banker or investor, no news is bad news.  Keith says bankers always hear about the great fiscal quarter or record sales, but when the business is slowing down or missing revenue targets, the silence can become deafening.  He explains that bankers need to file internal reports and when information stops flowing, they start to wonder if something is wrong with the business. 

“You have to keep up the conversation with your financiers because even if you get a loan today, you will likely need more money down the road.  Do what you say you will do and when you need help, the company will be looked upon more favorably.”

6) Management; Management; Management.

Like a real estate agent’s mantra of location, location, location, Keith says management is key for business financial health.  “If you don’t have strong management skills, nothing else will save you,” he says. “It doesn’t have to be just one person.  You don’t have to be an expert in everything, but you should recognize the areas where you need help.”

Companies need to know how to market products, manage sales, run operations and manage financials.  Sometimes smaller companies can’t afford to hire employees to do everything in-house and should consider outsourcing. 

Keith cites an example of a company who was not managing their financials adequately, and found that instead of having $1 million inventory, they really only had $300,000 and had been losing ney for the last five years when they thought the business was profitable.