It’s a question that many business owners will have encountered at various stages of their business cycle, and the short answer is this: if the opportunity is sound, make it happen with fit-for-purpose funding.
What is fit-for-purpose funding?
Put simply, fit-for-purpose funding is finance designed to support a specific goal or opportunity. It’s not in place for a long time; nor is it an ongoing facility. It is put in place with timeframes and repayment structures that are specifically geared for a particular opportunity, and importantly, so that the end result of seizing that opportunity makes sense on the bottom line.
Say for example that you have an opportunity to import sought-after goods that would cost $80,000, but your existing finance facility won’t stretch to the initial outlay needed.
Having completed your due-diligence, you have assessed that the $80,000 outlay will deliver a return of $60,000, and that the on-sale of the goods would be complete within 60 days.
So in short, you need $80,000 funding for 60 days that would deliver a margin of $60,000 through a process you know will work.
Does the return on investment (ROI) stack up? Will the cost of funding the opportunity for 60 days deliver upside for the business? Can you “pull it off” and deliver benefit to the bottom line?
If so, then the only thing left to do is to secure fit-for-purpose funding and get to work making the opportunity for growth happen.
Assessing whether to finance an opportunity for growth? Here are five key thing to consider:
1. How likely is it that it will deliver the assumed return? Can you execute the plan?
2. How long would you need the finance for? Could you shorten that window?
3. Will the return minus the cost of the opportunity deliver a healthy ROI?
4. What upside would this deliver to your business? Is the profit worth it? Would it springboard further growth?
5. Who can you speak to, to assess the smart way to finance this opportunity with fit-for-purpose funding?
And on that last point, we welcome you to talk to Merx Growth Fund. We specialise in helping New Zealand business owners with fit-for-purpose funding, so that they can realise opportunities for growth where it makes good business sense.