How Do You Determine A Company’s Optimal Capital Structure?

You develop a comprehensive three-year operating-plan composed of individual disciplines such as sales, marketing, services, development, and F&A, from which income statement, cash flow, and use of proceeds are computed. From those assumptions, modulated by your assessment of risk, come the capital requirements needed to run the business through its transitional periods.

Setting up the operating plan is not the magic, walking through it with a founder gives a remarkable insight into the business, the process of gathering the information and discovery often instrumental in leading to decisions as to how to focus on the business on producing optimal profit margins.

Like how I once dissected a medical business and discovered how the business had diluted its profit margins by focusing on too many product lines. Returning it to becoming the king of one rather than the king of none.

Nothing beats a great vision of a product or service to produce value, but without a strong operating plan to support the viability of its realization, a vision remains just that.

Having completed the operating plan is also a fantastic instrument in fundraising efforts, as the time spent on walking through the variables of the plan feeds potential investors the dog-food to make a viable investment decision, for you are now talking their language; finance.

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