If you are unsure whether your liquidity looks reasonable or whether you need to strengthen your equity, Business Broker partner Ole Jensen recommends that you take a financial litmus test:

"When owners want to determine whether they need capital, they should first calculate the ratio between the company's net interest-bearing debt and EBITDA. This gives you an indication of how many times the company's earnings can be used to repay the company's debt," explains Ole Jensen and elaborates: "The ratio between the company's net interest-bearing debt and EBITDA should preferably not be higher than 4. If the ratio is higher, it could mean challenges ahead and thus a need for capital."

The company's solvency ratio is another indication of whether the company is healthy. The solvency ratio measures equity in relation to total assets. Ideally, equity should be at least 30 percent of the company's balance sheet total - a level that can help strengthen your terms with banks and other creditors. In other words, if the results of these calculations do not reach the recommended level, it is worth considering a capital injection into the company.

Internal fundraising for your business

If you realize that you need to inject capital, it is natural to explore the possibilities with the current owners. Ole Jensen outlines:

"If the capital comes from the current owners and everyone contributes based on their current ownership share, also known as pro rata, everyone will retain their ownership share. If, on the other hand, only some of the co-owners are responsible for the capital injection, the first step would be to get a valuation of the company, so you know the price of the company and thus know what an ownership share should cost."

Raising external capital for your business

If you decide instead that the capital increase should come from a new co-owner, this will involve a different process, which may take a little longer. An informal, non-binding meeting with advisors from Business Broker could Business Broker the first step. Ole Jensen highlights several topics for such a meeting:

• Which investors are relevant to you and how do you find the right investors?
• Are there employees who can become new co-owners?
• Should the new co-owner own more or less than 50 percent of the company? In other words, is it a question of finding a minority or majority shareholder?
• Do you want the capital injection to be the starting point for a generational succession?
• Do you want the capital to be injected as share capital or perhaps as a debt instrument for, say, two years, after which the new owner can convert to equity?
• What skills and resources do you want to add to the company as part of the new ownership structure?

Good solutions require good preparatory work – Business Broker the relevant experience and network to act as a sparring partner and M&A advisor for the owner group in connection with raising capital.

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