BUSINESS SENSE
“Repayment” – Week 11
Nancy Larsen, Enterprise Facilitator of SEFP

Repayment is tied directly to your success. In order to repay your Funding Source, you must clearly define how you are going to make money and how much money you are going to make.

How much research and development remains before you can enter the market? Does your product require regulatory approval? What is your time table or what delays are foreseeable that could affect your time table? Are there any alternative plans if tests, approvals, patents, licenses, etc., do not go as planned?

You need to demonstrate that you understand your product, its market, its costs and your industry through the break even analysis. Exactly where is it? How many widgets must you sell to pay your bills?

What is your debt coverage ratio? Your net income should be 1.25 times higher than the debt payment you are proposing to take on and this determines your ability to service debt. With investors, because there is no debt, they are concerned with profit margins and retained earnings. The projections should support ratios of better than 2.0 to 1 to generate any serious investor interest.

Always try to arrange for funding when you do not need it. Entrepreneurs are famous for seeking capital in a crisis. When your need if great, rates always seem to go up or you cannot find capital at all. Do your best to forecase your capital requirements at least six months in advance.

Remember – “Good entrepreneurs hire optimists as salesmen and pessimists to run the credit department”.

Next weeks topic is: “Pro Forma Financials”

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