Raising Funds for New Projects

Every new project in spite of being a revenue churner is also
a great revenue drainer. And central to this is the judgmental selection of a
stream through which one can gather revenue to feed into new projects.

Being businessmen we all passionately indulge in signing and
taking up new projects. But when it comes to getting adequate finance we are
left at the mercy of private financers and moneylenders.

Another howler which most of us habitually execute is fueling
a new project with working capital, which in itself is a very irrational thing.
By doing this we intentionally block our money that can't be recovered until
the payment is realized from the customer. In order to get away from all these
hassles we ought to look for other options of nourishing our new ventures with
adequate capital.

Sources for getting finance

Typically there are three main revenue streams that could be tapped for
obtaining revenue-debt, equity and IPO. The money sourced through debt is the
superior and cheapest source one could think of.

For getting money on debt the major recourse are the banks.
Here the factor that should be zeroed in on is to suitably maintain the books
because any financing agency who would give you money look at two main aspects,
which are the profitability of the business and collateral we have at our end.
There we could leverage greatly our well-maintained balance sheets in getting
the required amount for a project.

The thing that matter predominantly is to keep the balance
sheets clean and never play with the figures of your books. Typically the
unanimous mentally is to under provision the balance sheets and in their pursuit
to save taxes people intentionally show less profit in their books, which one
should strictly abstain from. After all if someone is to give us funds, whether
it is a distributor or banks, they decide the limits based on our books. Hence
one should treat their books as sacrosanct.

The other thing that holds significance is to maintain good
relationship with the banks, which are our purse from where we could take out
money in the time of need. It is very essential to have excellent tuning with a
bank that is an assurance that we have enough backups for starting off any new
venture.

Opting for equity

Another revenue generating option is the equity. Here we could extend
partnership in our concern to someone and offer him stake in the company which
could range from 10%, 20% to even 90%. But with this option one runs the risk of
interference from the person who owns stake in your firm.

In equity option one factor that is looked for by the partner
is the future of the business. Its sheer prosperity is what lures the investor.
The depositor always look what he would get in return if he is putting his hard
earned currency in somebody else's venture. Since anybody who invests money in
your business does that to take advantage of the profitability aspect and while
at it he might also want to proffer his advise in running the

business.

As far as private equity companies are concerned they also
pay heed to exit options, and there you have got to do your act perfect. For any
stakeholder what holds more significance is the future of your business, even
before somebody puts money in your project he expects high returns on his
investment, which might come from transferring his stake to someone else at a
premium.

Hence whom you make your partner holds the key for future
growth given that a wrong partner could also ruin your business. Therefore, your
partner selection ought to be right to avert any unnecessary meddling in your
concern. One should doubly make sure before choosing equity option that his
freedom is not hampered by an unwanted intervention by the stakeholder.

Go public

Another viable revenue generation option is to go for an initial public
offering (IPO). This calls for a full registration with the securities and
exchange commission (SEC). The company should therefore analyze its financial
muscles and go for an acid test by themselves.

Before plunging into an IPO option, gauging company's own
strengths is obligatory, which means the owner should consider the size of his
concern before floating public offerings. There is no point going for IPO way if
the annual turnover of a company is less than Rs 100 crore. IPOs are perhaps the
most expensive way to finance a company. Hence any firm eager to float an IPO
should have an annual turnover of at least in excess of Rs 150 crore.

Companies must demonstrate the potential to develop into
profitable enterprises that will deliver significant annual increases in sales
and earnings to attract investors. Established firms must also demonstrate
significant future growth potential.

The company's credibility also holds paramount value. There
should be enough brand equity of the company in the market place to earn the
confidence of the investors, so that should not run the risk of making loss.
Once the company becomes a listed identity, everybody respects it and express
willingness to invest in it.

Merging to raise capital

Apart from these three constructive fund raising practices one can also go
for an innovative way to raise capital. The option is to merge or acquire a
company, which is already listed at the stock exchange. Of late this concept of
merger of a company with an already publicly listed identity has been proved
beneficial for the bigger concerns as well.

By adopting this concept a company that is going for a merger
with existing listed identity could leverage the benefits, such as, access to
the capital that the company already possesses. This phenomenon has been
demonstrated by Delhi-based Vishesh Infotecnics who has merged itself with a
listed company.

By taking advantage of all these fund raising approaches
solution providing companies could really achieve their desired altitude and
take up projects without giving a second thought to sponsorship issue.

Ranjan Chopra is the founder of Team Computers, New Delhi