Do you have plans to expand? Perhaps buy a new piece of equipment, expand staff or relocate?
Your plans will cost money—so how will you pay for them?
Many entrepreneurs make the mistake of paying for growth projects out of everyday cash, instead of using a financing source.
Growth issues
A business may be profitable and still be forced out of business. A growing business may have higher concentrations of payables, receivables, and heavy inventories. Revenue increases may not keep pace with cash drains as business is ramped up. The key is to match financing and expenditure type. Working capital and lines of credit should be used for short term recurring expenditures for operating the business.
Match funding and assets
If the business needs equipment or some other capital asset, use business term loans and match the term to the expected life of the equipment.
Plan
Plan ahead so financing agencies can be approached ahead of time. This shows the bank or agency that you have a strong management approach and understand needs. It also can provide conditions for improved borrowing terms.
Negotiate
Early planning may allow the business to negotiate not only lower interest rates but lower administration fees, deferred principle payments, and length of term. Flexible terms may free up additional cash.
I hope some of these ideas help manage your business growth. Let me know what you think.
gerry@polarisgroupmc.com
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