Capital Formation
Capital Formation Services – New for Ritz Group 2020
The Ritz Group is adding an exclusive and much needed deliverable to their 2020 Capital Services Suite. Capital Formation Services consist of a suite of turnkey Private Equity Services tailored to entrepreneurs and small business owners who want to expand their business and need to raise capital. The amount and type of capital funding is directly related to the business expansion plan.
The types of capital funding consists of owner equity from founders and business owners, debt loans from individuals, or financial institutions, LOC loans, accounts receivable financing, equity-secured loans, grants, and private equity investment from shareholders.
Each of the capital resources listed above have definitive requirements to place funds. Companies must meet specific qualifications to be approved. Each funding source has very specific investment collateral they use to assess repayment RISK and set payment terms.
The capital resources each have their own lane in the funding food chain. They were established to serve customers across a specific vertical market competing with competitive capital sources in the same markets. They also recognize businesses will use a combination of financial resources over time as they scale their business
The market need is not another training course or accelerator, but creation and delivery of a turnkey Capital Formation Plan working with the Founders and the Executive team. The Capital Formation Plan is a time consuming effort – that requires both financial and executive skills beyond the bandwidth of the Founder, mentors, boards, lead investors, legal and financial management.
A Capital Formation Plan is the creation of the best capital resources at each stage of growth of a business from inception to exit.
For example, a company can open a business using founder capital, credit card debt, add partners with investment, get a line of credit loans based on the credit worthiness of the founders and/or partners, to build product and generate revenue from brick and mortar or online commerce.
With revenue production, the business can now leverage their sales growth with accounts receivable financing, capital equipment loans, bank or small business government equity secured loans. They can use the new sales track record to launch expansion plans with private equity funding from private investors who will realize their return when the company growth qualifies for a merger or be traded on the public stock exchange.
It is not necessary that each early stage company go through each capital funding option. Each funding source has their own cost of capital and tax advantages. This cost of capital dictates the type of funding and deployment. Revenue windfalls, or shortfall, can also defer or accelerate alternative forms of finance.
The Capital Resource Plan identifies the best funding strategy for each stage of business growth. Then it is tracked and modified based on actual business revenue and expense financial performance.
The critical component in ALL Capital Formation strategies is the expansion growth PLAN. Every aspect of that plan must be identified and then validated for implementation risk. A BAD plan will generate BAD results and will kill any planned, or unplanned, funding options.
None of the above funding sources risk assessment models reward a losing businesses. Placement timing to each resource is critical to receive funds at the right time to fuel the next stage of business growth. Key is soliciting and receipt of capital placement – so as not to delay company growth.
The entrepreneurial and small business world is full of ventures that stall because their performance cannot meet the capital funding requirements for their next growth stage.
There are two (2) distinct phases of the Capital Formation Plan. First, the business growth PLAN dictates the amount and timing of the Capital infusion. It also validates the type of capital funding, as well as validate the company projected growth will meet the capital funding requirements of each funding stage.
Today’s Entrepreneurs rely on creating a comprehensive PLAN to solicit major infusions of private equity capital to disrupt a large “niche” market and drive exponential scale. Each private equity capital raise is based on performance milestones.
Small businesses have an advantage because they can leverage their existing business as a “proof-of-principle” to qualify the owners and the growth concept for scalable expansion.
The second phase of a Capital Formation Plan is updating using actual balance sheet performance, plus the latest forward-thinking sales forecasting. It is this re-cast combination that re-projects the capital requirements, investor ROI and any required Pivots to change course.
Capital Formation Services, from the Ritz Group, provide full turn-key professional services to work with the founders, or current business owners, to create the expansion Capital Formation PLAN. Then, they architect the best Capital Formation strategy to meet that Plan – from womb to tomb.
Turnkey means the Ritz Group consultants will “LEAD” and work with the client management team to validate where they are in their expansion “thinking” and then architect the best strategy to “make it happen.” If the founder, or small business owner, has their investment collateral in place – Team Ritz Group will AUDIT to validate and provide a second opinion
When the plan is less structured, and/or an existing business with a track record, the Ritz Group will take the lead to create the Launch Plan and the companion Capital Formation Plan.
The Ritz Group Capital Formation team will also stay engaged through-out each phase to monitor milestone achievement through exit.
Rule #1. The Capital Formation Plan must work on Paper for it to ever happen in the business world.
Rule #2 Nothing ever goes according to the best laid plans – so they must be modified with actuals to recast results for management and for their investors.
The benefit is simple. The combination of a growth and integrated Capital Plan is beyond the scope and scale of most founders, business owners, their accountants and lawyers. It is both labor and skill intensive. Yet, a growth and Capital Formation Plan must include the principles, their trusted resources and professional service providers on an active, or as needed basis.
Ritz Group Capital Formation Services is not about teaching. It is about executing and leading. War-room planning sessions insure we mine the benefit of “Group-Think” and achieve “buy-in” by those responsible for implementation success.
Each Capital Formation client engagement is tailored to the specific needs of the “client” and modular based on the “findings” of each phase. The client has full authority, based on results, to delay or terminate the project after each phase.
The Ritz Group is the author of the Capital Drilltm and leader in Private Equity Capital formation to project and model Investor projected returns. This tool set, combined with entrepreneurial and corporate executive experience, represents the “secrete sauce” required to capitalize companies in today’s modern world of capital finance.