Taking the leap to greatness – using debt to finance site roll-out
If you run a fast-growing business that is ready to open new locations, you’ve undoubtedly spent time investigating the various growth funding options available to you. As well you should, because when it comes to growing your business, growth capital can be a game changer. In fact, businesses implementing a roll-out strategy can see significant benefits from raising capital, to speed up the pace at which they open new sites. This is especially true in markets where expanding your footprint quickly and before competitors is the key to success, making you the proverbial early bird that gets the worm.
There is of course the option of waiting for your existing sites to generate enough cash to fund the opening of new sites. This slower growth may seem like an attractive option, particularly if the thought of raising equity and giving up a portion of your ownership and control fills the management team with dread. That is, until you consider roll-out growth capital provided as venture debt. If you’re looking for accelerated growth, while maintaining control of your business and expansion, debt may be just the answer you’re looking for.
What is site roll-out financing?
At BOOST&Co, we believe that when you have done the hard work of getting your business off the ground and proving your business model, you should be able to raise capital for growth without having to dilute your ownership or lose control of your business. Companies instigating a site roll-out are a perfect example of this dichotomy – when your business has opened enough sites to prove that it is scalable, you should be able to raise capital that is cheaper than equity to open further sites. After all, you’re only going to be replicating what you have already done repeatedly. We understand this and, more importantly, we feel the same way.
BOOST&Co believes that debt is the best option to fund a roll-out expansion strategy. Why? Well, having proven and mature existing sites indicates that your business can sustain the debt. And if you can prove that existing sites all have a similar financial profile, we can assume that new sites will follow this pattern – enabling investors (that’s us), to lend you more capital. All of this means more money, in a shorter time period, and at a lower cost of equity. What’s more, loans can be funded in tranches, with each tranche supporting one or several new sites. Capital is available as and when you need it, allowing for a staged growth that gives you the visibility and confidence you need to track and launch new sites.
Taking the leap
So, what are the criteria that we look at to provide site roll-out financing? There should be enough evidence that your business model is proven, and that it is scalable. You should also have a clearly articulated strategy, that indicates management is aware of and thinking about the risks inherent to any site roll-out strategy. Luckily, existing site metrics should do the talking for you. If you can show a number of sites, some of which are at maturity, and can show the financial metrics of these; all we have to do is take the leap of faith that future sites will follow a similar journey to reach the same result. And we want to take the leap. We really do.
Proven business model
Essentially, you need to have enough sites open to demonstrate that the business model works, rather than having struck it lucky on a single successful site. You should also have enough mature sites to provide a good understanding of the business model, and establish what a successful site looks like. Ultimately, we’re looking for proof points that the success of initial sites can be replicated in a predictable fashion. As such, we will look at a single site’s financial metrics, including:
- Upfront capex investment
- Time, opex investment and cash burn to reach breakeven
- Mature site financials, such as revenue and EBITDA generation
Readiness to scale
Once we understand what a successful site looks like, we look at whether you are ready to scale. This involves your ability to identify new sites, negotiate them, and ensure that enough funding is available to fund the identified sites. Another critical factor that we look at, is whether you have identified and implemented opportunities to centralise operations costs. We’ll also investigate how many more sites your current central operations can sustain, before you will need to expand them. Having taken tasks that occurred at the site level and centralised them to a single cost centre, displays the maturity of the business model. This ability to gain synergy and benefit from economies of scale makes a strong business case for investment.
Management team experience
To design and implement a successful roll-out strategy requires that the management team has experience of launching new sites, and requires a strong understanding of the business’ market, customers and potential locations. We will look at the background of the management team as it relates to your specific sector, but also in executing site roll-out strategies. Ideally, we are looking for a well-rounded team of people with this experience and success under their belts.
It isn’t just success that counts though. Every new site launch experiences challenges and failures. How the business reflects on failure and incorporates any lessons learnt into future plans, is a key indicator of whether future site roll-out plans will be successful. We will look at management’s ability to recognise the risks linked to a roll-out, and how they plan for controlling these risks.
Getting the ball rolling
From fast food outlets, to gyms, leisure parks, and co-working spaces – BOOST&Co has looked at and worked with a number of companies implementing site roll-out strategies. You can read about how we helped our most recent site roll-out investment to realise their growth dreams here.
We offer non-dilutive site roll-out financing in the forms of loans of between £1 million and £10 million, that amortize over three to five years. No covenants are required, and funds can be drawn down as one lump sum, or in predetermined tranches. To learn more about how we structure our financing solutions, simply click here or take a look at our handy infographic.
And if you’re ready and eager to speak to us and think that roll-out financing is what your business needs, we’re waiting to hear from you on +44 207 651 4934.