When revenues are volatile, your financing should be aligned
Even in situations, where there is not an external crisis hitting your business’ revenues, sales development of young companies does not always follow the clear path mapped out in business plans and pitch decks. This is normal and should be expected. Sometimes this is even wanted or beneficial if it is, e.g., driven by a shift to a new product generation or a change in pricing models or other adjustments to your strategy.
If your financing then is partially reliant on “classic” debt with fixed interest payments and a fixed schedule for repayments, additional liquidity pressure from debt service or urgent needs to organize re-financing can come at the worst time in your company’s development.
Revenue-based financing offers an alternative, as royalty payments in the RBF model develop completely organically with your revenues. The percentage of revenues that serves as payment always stays the same, meaning that absolute payments fluctuate predictably with your sales development.
With no fixed interest rates and no fixed short-term payment schedules, revenue-based financing is the better financing solution to accommodate revenue volatility. As such, revenue-based financing creates a true partnership in sharing the risks and the rewards of your business’ development.