Funding is the engine behind the growth of any scale-up. Founders have to understand the different sources of funding, each with their own advantages and disadvantages. Start-up companies can start with ‘bootstrapping’, whereby they finance their growth from their own resources, but the next level almost always requires extra input.
As the need for capital grows, you will consider attracting investors. This can be through an angel investor or through venture capital. It is important to properly prepare a financing round by presenting a strong business case that highlights your company's potential. Grants and loans can also be part of the financing mix.
Terminology can be confusing, but financial jargon is indispensable for entrepreneurs at the scale-up stage. Understanding terms such as 'burn rate', 'runway' and the various interpretations of 'liquidity' are not only important to assess the financial health of your company, but also to be credible to future partners. It allows you to interpret financial reports, ask the right questions, and make informed decisions. You’ll have a stronger negotiating position and will increase the chances of obtaining funding.
But through all of this, your best bet is to focus on a positive net profit. That is the driving force behind the sustainability of your scale-up. It is not only an indicator of financial health, but also a signal to investors that the company is profitable and has potential for further growth.
Achieving a positive net profit requires careful planning, strong cost control and a smart pricing strategy. It's about more than just sales; it's about finding a balance between income and expenses to maximize profitability. I always emphasize the importance of regular financial reviews to ensure that the company stays on track to achieve this crucial goal. It is essential that every department within the company contributes to efficiency and cost awareness.
A well-thought-out financial strategy, often developed with the help of a scale-up consultant, is crucial to obtaining the right financing and taking your business to the next level.