The financial instrument: go beyond the interest rate

For many, the choice of financial instrument is limited to selecting the financing offering the lowest interest rate.

This is why such an approach is very limiting and generally leads to an increase in risk for a company and its shareholders.

As you can see in the table, the advantage of low cost is offset by high guarantees and inflexible repayment terms. Thus, strictly financing your business with low interest cost financial instruments will have the impact of increasing risk.

Furthermore, you will notice that more expensive tools, such as growth and development capital and equity capital, offer significant advantages in terms of risk mitigation. For example, institutional investors offering these types of products generally do not take guarantees and they offer very flexible repayment terms. In addition, it should be noted that the absence of guarantees implies that the recovery of the investment depends on the continuity of operations, aligning the objective of the company and the investor in times of turbulence. Thus, faced with a crisis, the investor will quickly lighten its terms and will even be ready to reinvest in order to ensure the survival of the organization.

In short, before making a decision on the financial instrument you will use to support your development, go beyond the interest rate and take the time to compare all of the following elements:

• Risk sharing;

• Guarantees and sureties (personal and corporate);

• The terms of reimbursement;

• Other costs;

• The required financial ratios;

• Flexibility of payment terms.

Choosing a partner: competence first

In business, as in life, we are only as good as the people around us. When it comes to selecting your collaborators, please don't be seduced by gimmicks like a nice box at a sporting event, a dinner at a fancy restaurant, an interest in your personal passions, or a blinding charisma. While these characteristics are highly valued in a relationship, the fact remains that the true ability to support you in business goes far beyond these elements.

From a financial perspective, all bankers and investors will come to you with the promise of being “more than just financiers, but rather real business partners.” Without assuming that this is a lie, it is entirely legitimate for you to question this statement. In order to qualify as a true business partner, your employees must have more than just great seduction skills. They must be able to demonstrate to you that they have the following skills, among others:

• Technical know-how in finance;

• A deep understanding of your industry;

• Knowledge or experience in business management;

• An understanding of the key indicators of success in your industry.

In this sense, here are some questions you should ask your future partner in order to confirm his or her skills:

• In your opinion, what are the two main opportunities and threats in my industry?

• What is your experience in my industry?

• What are the key indicators of success in my industry?

These few questions will quickly allow you to distinguish the true from the false regarding the skills of your future collaborators. Moreover, these same questions can be useful when it comes time to choose your accountant, your lawyer as well as any other strategic partners.