Which funding option is best? Is it best that the capital come from only one source, or does it make more sense for the capital to come from multiple sources? How do you decide? How you decide to capitalize the business is called your capital formation strategy.
There are undoubtedly a number of other factors to consider depending on your company`s current circumstances, and, quite importantly, where you want your company to go in the next few years.
How do experienced executives determine the best capital formation strategy for their company? First, in considering all of the internal and external factors listed above and, of course, those not listed above, it is time to eliminate those sources of capital that for one reason or another are not available or appropriate at this time.
Next, think about the business plan you`ve just written or updated and then build a financial forecast that includes a balance sheet, income statement, and cash flow statement.
These forecasts should be presented monthly and annually so that you can see how future changes in the business such as increased sales, additional staffing, or seasonality will affect cash flow. Remember, you don`t want to run out of money. Now that you have your capital formation strategy organized and ready to execute, you may want to confer with your stakeholders and advisers and listen carefully to their feedback.