Capital Financing
Executive Summary
Modern organizations are adversely challenged by heightening competition. In this light, the advantages associated with diversification are becoming close concern, compared to specialization. To achieve this, firms in the technology sector are attempting to offer comprehensive packages to tap into the possibility of providing a one-stop product solution. Lack of sufficient capital however, prevents these firms from offering these menus of services. This then calls for the necessity of capital financing, either internally or externally. This document will attempt to prove how capital financing can be used to mobilize initial investment fund. The document will highlight a case-study of Brilliant Technologies and how this firm can outsource funds to answer to installation funds required by the firm. The paper is structured into four main parts. Firstly, the background of a real organization Tensoft; in this case presenting information of what the firm has been doing and who are its potential partners in venture capital. The same section proposes the initiation of Brilliant technology as a Start up company, in line with replicating Tensoft business ideology. In addition, within this section a risk analysis mechanism has been introduced as part of the decision making process, in deciding to pursue a given technology. The second part discusses the satellite source of funding, where critical consideration will be given on the advantages of Venture Capital. This section will also introduce pro forma projection and how funds will be utilized. This section also advises on the use of Research and Development (RD) department to provide information on the budget formulation process. The document ends with a risk management strategy, an advice and caution to stakeholders involved in the formulation process.
Background of an Ideal Organization (Tensoft)
Tensoft organization has been involved in providing software solutions to emerging firms, individuals and government based organizations. Recent products are attempting to provide hybrid solutions, primarily those, which can run on three platforms: servers, personal computers, and mobile phones. Tensoft has realized that Data Robotics is attempting to replace existing systems; for instance Quick books in large supply chain environments. The Tensoft system is designed to respond to unique needs of the manufacturer (Tensoft, 2008). This is a realization that traditional ERP systems fail largely because the client ideas are not responded to by the system. Most customers want to integrate other computation devices, for instance multi-printers and the Enterprise Resource Planning (ERP) system. Although Tensoft capital is generated from sales income, Tensoft is allied to Microsoft which has been supporting and promoting solutions using the Microsoft Certified Partner. The Tensoft website (February, 2009) explains the relationship between Tensoft and Microsoft is based on venture capital, which is primarily responsible to develop its Tensoft projections.
Start-up Company Brilliant Technologies
The goal of this start company is to lucidly integrate robotics to Enterprise resource planning (ERP) and Customer Relationship Management (CRM) systems to be developed by our in-house technicians. Central considerations include the need to determine the strategic purpose of the financing plan, one that will position this firm with the ability to formulate customized technologies for our firm. To achieve this, the firm is compelled seek funding to develop the plant, as well outsource other technologies and hardware. The goal here is seeking to improve the business’ market potential by offering comprehensive products. Strategic financing looks at the strategies of orienting capital investment. Secondly, there is the need for this firm to determine both the short-term and the long-term financial goals. In this case, short-term financing will look for short-term goals, and long-term financing will depend on the nature of long-term goals. Again, there is a need to determine the nature of the loan to pursue and whether the loans are secured or unsecured.
Risk Analysis Mechanism
Before commencing on a clear financing strategy, it is imperative to determine the risk-return-ratio since this will determine the pros and cons associated with the process. Kapoor, Hughes, & Pride, (2008, p. 448) argue that most firms have failed because their managers did not give sufficient attention to risk assessment mechanisms. A poor risk analysis mechanism is also responsible for firms’ failures to pursue brilliant projects; that is, risk-return ratio goals and objectives. Secondly, risk analysis ensures that excessive spending will be monitored at every stage of project initiation. Thirdly, a proper risk management mechanism will ensure that the firm is in a position to pay its bills and taxes promptly. Fourthly, a risk management mechanism will ensure that sufficient funding will be available between now and in future. Kapoor et al argue that risk-return ratio is based on the principle that a high risk decision should be dynamic for business returns.
Financing Strategies
Moore, Palich, & Longenecker (2009, p. 295) argue that it is imperative that the entrepreneur determines the financing needs of a firm. These principles are central in establishing the firm’s goals and needs. The principles will be structured in determining sales growth. Financing is required in most cases as a result of pressure to respond to market demands. Secondly, financing will be integral in allowing a firm to maintain adequate liquidity. Liquidity is vital since it determines the firm’s strength in meeting maturing short-term debts and other emerging operational expenses. In any case, the cash flow in small businesses forms the backbone of the organization strategy, thereby presenting an eminent need for small businesses to focus on liquid assets. The refinancing program will attempt to split the financing fund into two main sections. These are small financing funds to meet short-term assets needs and major financing looking to procure vital capital. Short term assets on the preliminaries of project initiation; this can be defined as running capital while long term financing attempts to look at the possibilities of the firm’s rejuvenation. Kapoor, Hughes, & Pride, (2013, p. 556) established that long-term financing will look on the derived possibilities of product development, long-term marketing activities, replacement of obsolete equipment and expansion of facilities.
Source of Funding
Once financing strategies are established, it is essential to determine the source of the funds. The source of funds will determine several factors. These include the amount of the actual funding, the interest charged by the funder, accumulated interest, the repayment method and the nature of collateral security (if any) offered. This part will be vital in analyzing potential funding methods and in any case, establish the pros and cons of each method.
Venture Capital
This financing strategy is lucrative because of its ability to provide early stage, high risk and high potential investments. The mechanism is profitable since both the funder and the borrower have a unique business interest, which is not ignored in the refinancing process. In any event, the venture capital funder will get back his finance by owning equity in the firm. Steiler (1995, p. 338) argues that venture capitalists seek to provide entrepreneurs with the minimum cash required. The advantage associated with this is that the funder will be saved from damage associated with the firm collapsing. In such a case, the funder is at liberty to liquidate assets equal to the amount of the initial fund. Brilliant Technologies will benefit extensively from venture capital. Primarily, venture capital mobilizes capital without the selling of equity completely. This will be imperative since the company will control basic management elements of the firm. Secondly, venture capital provides the investor with alternative options, which will in this case salvage the firm from a liquidity gap. This is possible since venture capital enables the investors to minimize the risk of loss, by integrating more than one funder. Thirdly, Steiler (1995, p. 339) argues that venture capitalists enjoy the advantages of improved management. In any case, team members will be provided by credibility with customers and suppliers. Steiler (1995) is joined by Cch. (2009, p. 676) who argues that the borrower has all the benefits of equity, for a predetermined period after which the proprietor can gain full control. In this case, Brilliant Technologies will lose the abilities to make important management decision.
Other Potential Funding Schemes (SBA & Vendor Financing)
Venture capital may seem a real funding option. However, this funding may not be sufficient as Brilliant Technologies wants to invest in demanding capital intensive techniques. In this light, pursuing other funding options is important for the firm, given the fact that funding still remains a scarce resource. Satellite funding mechanism includes Small Business Administration (SBA), and vendor financing. SBA is a government initiative that seeks to financially rejuvenate struggling small businesses. The economic Under the Recovery Act is the idea behind SBA financing. After the 2008 credit crash, the government authorized funding to be expanded by 90 percent. Brilliant Technologies will apply these loans with the intent of strengthening the funding gap. Similarly, vendor financing may seem lucrative. This financing strategy works in the same way with venture capital since the funder collateral is provided via company shares. In any case, vendor finance bridges the valuation gap of the original fund. However, this funding scheme is challenged by the fact that the financer may impose interest on the original fund, making it harder for Brilliant Technologies to maximize profits.
Budget
Types of Pro forma Projections (Discussion)
Formulating the capital budget for technology projects is an uphill task and in case the budget cycle is constrained by the lack of essential aspects from satellite vendors. Consequently, in modern day economies, spending cutbacks in a difficult economy can upset plans and are best made on contact. Peterson, & Fabozzi (2004, p. 110) argue that the focus here is orienting a new technology that will improve the production process drastically to not only the future cost of structure, but also an improvising technology that will make the firm competitive domestically and globally. To approach this challenge, this document proposes the proper identification of technology projects with the goal of achieving corporate goals. Secondly, it will be necessary to request links to the overall IT Department to participate in the procurement process, as the I.T Department will be required to develop software solutions which are compatible with IGM mechanical operations. Thirdly, a strategist will be mandated in specifying the Total Cost of Ownership (TCO) in the budget requests. Fourthly, strategists are mandated to provide key value statements to justify the expenses. To ensure that generic budget requirements are formulated, it is essential for strategist to determine enablers of the project. In this case, the enabler is the installation of an IGM machine. Secondly, the corporate technology plan will heavily rely on endorsements presented by the I.T Department. The budget will also rely on the recommendation forwarded by the Research and Development Department. Critical concerns on the budgets will be divided into two main sections: external and internal. The external sources include; leasehold improvements provision, installation, implementation and professional services (vendor and consultancy). Additional phases will include periodical upgrades and supplementary professional services. For external facilitation to happen, internal considerations should be put into close consideration. In this activity, there has to be an integral focus in process design, training, project management, and change of management, development / integration, provision of management and specification of roles for the administration department.
Pro forma projections
| 3 Year Financial Plan | |||
| Brilliant Technologies | |||
| Latest Update: | January 20th, 2014 | ||
| Start Year: | 2014 | February | 1 |
| SECTION 1 – START UP COSTS / ASSET PURCHASES | Dollars | ||
| Purchasing Long-Term Assets: | |||
| Office Equipment | 65,000 | ||
| Furniture & Fixtures | 75,500 | ||
| Leasehold Improvements | |||
| Equipment Including the IGM | 390,000 | ||
| Vehicles | 200,000 | ||
| Buildings | 950,000 | ||
| Land | 750,000 | ||
| Total | 2,290,000 | ||
| Organization Costs: | |||
| Start-Up and Organization Costs | |||
| Wages | 70,000 | ||
| Total Long-Term Assets 3,360,000 | |||
| Purchasing Current Assets: | |||
| Cash (Working Capital) | 35,000 | ||
| Deposits | 55,000 | ||
| Accts / Receivable | 40,000 | ||
| Supplies | 70,000 | ||
| Inventory | 20,000 | ||
| Total Current Assets | 220,000 | ||
| Accounts Payable | – | ||
| Previous LT Debt | – | ||
| Total Funding Needs | 3,580,000 | ||
Technology Choice
Shubash (2009, p. 118) argues that a venture capitalist is to build a viable business, bring in new technology, and ultimately convert the assisted unit into a successful company, which is in line with this proposal to provide coherent technology solution. However, in order to convince potential investors to support this venture, budget formulation will be an integral prerequisite. The important task is ensuring the possibility of acquiring a series Multi Purpose Robots (MPR) with the most significant robot being IGM. According to the research provided on the IGM website, this machine was considered in line with our software solutions for logical reasons. Primarily, the IGM is capable of tracking, welding and measuring detected gaps. Other integral functions include beveling, controlling, conveying, cutting, editing, manipulating, storing, and unloading, with the ability to produce customized constructions (IGM, 2013). The positive aspect of an IGM device is that it is both computer aided and independent. Software solutions will therefore, seeks to instruct the IGM and other machines to process templates suitable to our customers’ requirements.
Risks Management Strategies
Russell (2003, p. 19) argues that the integral objective of project management is formulating improved methods and tools to ensure that the project is not challenged by logical constraints. In this case, the recognition that the project management is coupled with adequate risk management should be an integral consideration to focus on. Steiler attempts to show that a proper risk assessment plan should make an effort to use statistical information (Steiler, 1995, p. 341). Data analysis will be an integral measure to ensure that both the financiers and the Brilliant Technologies strategists understand the requirements needed at each stage of implementation. Primary requirements are operating files, report & investment proposals, planning documents, proceedings and meeting of the Board of Directors, existing financial statements, legal documents, industry relevant materials and press clippings. Steiler (1995, p. 339, 353) argues that engaged partners reduce the magnitude of risk that the firm will undergo by distributing it evenly to the project stakeholders.
Actions in Risk Management
Action One: Identify, assess and document program risks.
This will be accomplished by gathering stakeholders and focusing on how to achieve a new technology strategy. This can be realized by determining the role of each stakeholder. Second, the stakeholders will formulate relevant policies, primarily those which will be relevant to this project. Third, define what training apparatus is scheduled, mainly that which can respond in time of crises. Fourth, what is the technical health of support machines: the primary question is, how frequently do we schedule repairs and maintenance? Fifth, is there insurance available to respond to crises situations; are the contracts updated?
Action Two: establishing the role of each Stakeholder
This is essential since it assigns roles to different stakeholders based on specialty. To achieve this, firstly the strategists are mandated to develop volunteer position and descriptions. Second, interview stakeholders, as well as holding training sessions with them. Third, conduct screening for positions involving dependency and trust. Fourth, conduct orientation and devise training plans to be implemented in specialized situations.
Action Three: contract insurance firms for insurance covers
This project is capital intensive and therefore, it is a subject to manmade or natural disasters. The appropriate cover should be provided through commercial and general liability insurance. Davis (2002, p. 176) argues that the insured has the responsibility of proving that insurance cover exists. Since insurance business is hectic, it is important to engage a professional insurance broker who will offer clear and open information regarding the liability of each party.
Action Four: develop a code of ethics
Primarily, the code of ethics will be a key in motivating volunteers to add value to the organization. This can be used to trigger the collective moral responsibility of stakeholders present in the project’s formulation. To implement this, periodical forms should be signed in order to determine what each of the stakeholders is obliged to do. The code of ethics should include pledges for stakeholders’ obligations, participation in training programs offered, positivity, and respect for the dignity of persons involved in the project.
Action Five: development of operation fabrics, written policies and procedures
This is essential since it helps to communicate the goals of this project to the entire organization. In this case, it is essential to include a risk assessment plan in Board Meetings. Provide rules and regulations to be followed by Board Members. Thirdly, provide training on risk management protocols. Fourth, improvise communication channels on an open-door policy. This can be achieved by letting stakeholders communicate on a common platform.
Conclusion
While implementing this project, stakeholders should be aware of the challenging aspects of this project. The goal of this proposal is to emphasis on the importance of investing in this project. The project has identified the diversification agenda as a key profit maximization initiative. In the above discussion, core focus has been directed on how to firstly understand the background of the firm, which explains why the firm should pursue this project. Secondly, the discussion has analyzed suggested funding strategies, settling on the use of venture capital as the primary source of funds because of its associated advantages. Thirdly, the document has proposed on budget considerations and in this case, the Research and Development Department has been mandated to provide the relevant information. In summary, the discussion has critically discussed risk management strategies to be applied by the firm to ensure that risk is inherently managed.
References
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Last Completed Projects
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