How to Finance Your Growing Business

Most companies want to grow their revenue but don’t pay attention to make sure it is the right type of growth. For example, if every $1 increase in sales takes $1.50 in expense then it is not good growth. Also, even in a case where every $1 increase in sales takes $0.25 in expense how is the business financing the expense needed to create the sale. The expense is being incurred before you even get the sale so how are you going to pay for it? Answering this question is part of good cash flow management and planning process. The business will either to get financing internally or externally or both.

A good cash flow management plan should forecast how your business plans to use its cash including serious (not pie in the sky) expansion plans as well as where the cash will come from.

Internal Financing – Depending on your level of growth you may be able to set aside cash as a reserve for expansion. Expansion costs usually include additional employees, increased inventory and increased accounts receivables.

1. Use excess cash from sales to fund expansion and save interest costs.
2. Make sure your accounts receivables balances make sense. Too much accounts receivables could mean that your business is not doing a good job of collecting accounts when due. When you do not have good credit and collection polices your cash flow can suffer.

External Financing – Get it before you need it especially if you are in a period of rapid growth.

1. Bank Financing – Establish a line of credit that will help you with the ups and downs of your business so that every month you can make payroll and pay rent when cash flow is low. A line of credit should be used when cash is low and paid down or to zero when cash is up.
2. Create a relationship with your bank. The more comfortable they are with you and your business the easier it will be to get a loan.
3. Investors – Seek out investors that can help fund your expansion. I rather give up a large portion of my small business for the opportunity to have a small chunk of a much larger business. The amount of your business and control that you give up depends on the type of investor you bring on board.

Limit Growth – If all else fails slow down your growth plans in order to protect your core business.

1. By planning for growth you should be able to grow your business reasonably.

Follow these tips and you and your business should be well on having the financial resources to continue growing your business.