Business Funding Secrets
Business Funding Secrets

Financing: the Costs and Benefits of Waiting


Cost Benefit Analysis is a decision making tool often used in making a financial decision. As the name implies it weighs the costs against the benefits of the decision. To ensure the best decision using the process all appropriate and alternative costs and benefits must be included.

 

Due to the recent uncertainty of state and federal tax rates, along with healthcare costs, many companies have taken a “wait and see” approach when it comes to decisions about expansions, acquisitions, and financing those decisions. With higher interest rates and inflation on the horizon business owners and financial consultants need to consider the cost of inaction.

 

Companies involved in the healthcare industry are experiencing a consolidation of the industry for efficiency reasons. This is often called an industry roll-up and there are funding sources targeting the healthcare industry. Since financing for this industry is readily available, what are the benefits of financing a healthcare business compared to the costs of not doing anything?

 

There are other industries that have experienced sinking business valuations. What is a realistic cost of not selling the business now compared to later? What is the benefit of buying a competitor?

 

Will leasing new equipment position the company for more efficient productivity? Does a company have previous debt that could be refinanced before interest rates increase? Can additional working capital assist in hiring more sales people? What are the costs and benefits of expanding their marketing or product line for a financial consultant brokering loans, cash flow financing, and other financial services?

 

It is often reported that funding is not available. Capital markets have certainly tightened. However, there is still funding available for businesses that target their financially sound funding requests to funding sources pursuing transactions in that industry.

 

Many financial consultants specialize in specific industries, possess beneficial knowledge, and can assist moving a funding request to a successful financing transaction. The cost/benefit of paying a commission or consulting fee should be weighed against not receiving the funding.

 

There are no doubts that interest rates will be climbing. Even the small growth the economy is experiencing can lead to new sales. The time is now for companies to perform a cost benefit analysis to determine whether or not to consolidate, finance the expansion of their market share, or continue sitting on the fence waiting.

 

Tips: 
1. When there is more than one option, it is beneficial to use a common denominator in the cost benefit analysis.
2. Adjust different time periods to reflect current value.
3. The actual costs and benefits used need to be clearly tied to the decision.
4. Financial factors of the analysis may need to be adjusted for the time-value-of-money.
5. When weighing labor costs, along with the actual wages include training, vacation time, holiday pay, pensions, insurance, and inefficiencies.
6. Provided monetary values for factors such as, loss of reputation, retaining customers, market saturation, or new regulations.
7. Value of floor space and overhead, for a million dollar machine and a used desk, are not the same.
8. The amortized period and equipment life may be different and should be noted.
9. When the total benefits outweigh the total costs - action should be taken.

 

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