Funding Requirements Planning
This is a core responsibility of any CFO. The company’s CFO should always be comparing the company strategic plan to the funding available to be sure there is enough capital to meet the company growth strategy. In short you want to know what is the company goal, what are the requirements to get there and does the company currently have the assets to achieve this or must they be acquired?
Identifying the capital required to meet the company’s strategic plans is not always straight forward but can be reasonably estimated. Adding the capital requirements to the forecast of cash inflows and outflows is crucial to knowing if there will be a cash shortage in any of the upcoming 12-18 months.
If there is sufficient cash to weather the next 12-18 months then congratulations you now have time to put toward other pressing issues. If not, then the process of covering the cash deficit begins. If you are fortunate and the cash deficit is not too material then you may be able to manage through some of the following:
Delaying low priority R&M or CAPEX projects
Negotiating better vendor payment terms
Delaying payments / distributions
Collecting receivables earlier (possibly offering discounts)
Selling off slow moving inventory at a discount
Reducing inventory levels
Calling for a capital raise from the shareholders
If the amount of cash infusion required is substantial and material, then other options should also be considered:
Slow down capital expenditures delaying timing of cash outflows
Increase funding from traditional financing sources
Sale of Assets
Obtain growth capital
Obtain funding from non-traditional sources such as mezzanine debt
Sale of minority interest investment
Sale of majority interest
Merge with interested party
Take the company public
Some of these options can take months if not years to plan and execute so analyzing the company’s upcoming funding requirements is a necessity that should also be revised if there is any major change throughout the year.