Growth is crucial to the long-term survival of a business. It makes it easier to acquire assets, attract new talent and fund investments. It also drives business performance and profit.
Many business owners appreciate that growth is an essential part of building a sustainable business. They also know that trying to grow too fast has been the downfall of many small businesses over the years.
The first step is to work out how much financing you’ll need based on your overall business growth plans.
Next, meet with your financial partners early on to discuss your plans and brief them about your needs for the coming year. This is the time to secure a credit line for your upcoming investments, which you can draw on as needed and then convert into long-term debt at the end of the year.
The idea is to plan your financing to have the best possible conditions for your debt. The exercise may even show that you need more than one financial partner to give you enough flexibility.
And never pay for large expansion projects out of your cash flow even if it looks like you’ve got oodles of extra cash on hand right now.
Analyze your business and find out if:
Your market is growing: A market on the rise can be a good opportunity to expand. For example, if you’re a plumbing contractor and home construction is growing, it might be time to add another plumber or two to meet the potential increase in demand.
You find a complementary product that can boost profits: Sometimes opportunities for growth come in the form of related products you can add to those you already offer. A florist, for example, might find a new line of candy or chocolates they can offer; or you might hire an ice sculptor for weddings and events where flowers usually play a big part.
Your current customers want to buy more: Increasing capacity to accommodate your customers’ desire to buy more is a challenge most business owners want to face. This could also be the result of an influx of new customers who want to purchase your products or services and you need to expand to meet the extra demand.
You need more room: Sometimes growing out of your current space is a good reason to expand. As your business grows, customers increase, and you need more inventory, expanding your location or moving into a new one encourages growth.
You currently have a healthy business with a positive cash flow: Borrowing money to grow is a lot easier (and certainly makes more sense) if you have a healthy business.
You have a clear vision and a detailed plan for how you will spend the extra capital to facilitate growth: the more likely the borrowed capital will do what you want it to and the more likely a lender will be willing to offer you a loan.
You have systems in place to handle the additional business: Talking about growth and being ready for it are sometimes two different things. If you’re not sure how you will handle the additional business, it might not be a good idea to take on the burden of debt to facilitate it.
The finances make sense: Popular culture would have you believe that all you need is capital to grow; however before borrowing, it’s important to make sure the economics of the loan make sense.
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Advantages of growth
Possibly the greatest competitive advantage of business growth is the ability to capitalise on the economies of scale. As you increase your production output, you can bring down costs per unit and achieve savings across:
- Purchasing – by getting discounts for buying in bulk
- Marketing – by spreading the cost of promotion over larger sales
- Overheads – by spreading the staff or administrative costs across a greater output
Business growth can also enable you to:
- Increase your resources and stock
- Generate more sales and profits
- Reach new customers or markets
- Put more money back into your business
- Influence market price
- Reduce external risks (eg from competition, market or technology changes)
Expansion can also give an impression of greater financial viability of the business. Financial institutions often see larger businesses as more credible and stable than their smaller competitors.
Diversifying into new markets, products and services means that if one part of your business is exposed to market changes, you can rely on other income streams.
Looking for financing to grow your business? contact First Down Funding for all funding options.
This post was written by fdfadmin