Do you have great ideas for innovation? Is demand outstripping your ability to supply? Does your business require new equipment to pivot into growing segments?
Exciting growth plans and strategies are one thing. Seeing them successfully executed is another. Too often ideas and breakthrough innovations fail because of sub standard funding. And a big part of this failure is wishful financial resourcing! Thinking that limited funds available can stretch to provide added value. In other words bargain hunting becomes the go to tactic, which stresses out cashflow and places the business in jeopardy. This happens in every business type – from start-ups to established businesses. And it’s a trap that will foil your business growth plans.
Being properly funded for sustainable business growth is reliant on sound financial planning expertise. However, before you get into whether you need to seek equipment finance or commercial finance of some other nature you should consider your internal funding options. You could run a test market instead of launching nationally. You could ask your business to find savings in other areas. Or you could achieve your goals through alliances that share the financial cost? A good CFO or Finance Consultant earns their keep on both of these fronts.
Let’s not forget how important the emotional state of leaders is as a foundation for business growth. Leaders make better decisions when they feel in control and being properly funded for growth releases the anxiety leaders feel when under pressure to deliver with limited resources. Leadership can focus their time on growing the business rather than constantly trying to find money or tightly managing a budget.
Finance options you should consider for your growth plans
Funding and cashflow is the lifeblood of any business.
This is especially so where a business is experiencing or wants growth. Growth is an exciting phase for any business and its owners, but it comes with some risk too.
So, make sure you understand your options.
First of all, the very best funding option is your own. What I mean here is to look internally first to see if you can sharpen up any aspects of the operations of your business. This may include:
The Gross Margin you achieve on the sale of your products – can it be improved? Or can you focus on the mix of the products you are selling?
Review all your Expenses, are their any savings that can be made?
Credit Control - do you know what your average Debtor Days and Creditor Days are?
Take an example for one business we worked with recently. They had strong Profits, but short on Cash. Yes, that is a common story.
A review of their credit control process showed that their Debtor days were out to 75 days on average. By better enforcing their policy, they were able to reduce this to 53 days.
Based on their turnover, this resulted in an annual savings of $185,000 and remove the need for a new debt facility.
External Funding Options
Once the internal renovations are completed it may be time to look at external options.
This is where most businesses get it wrong. They get the incorrect type of funding for the purpose it is needed.
Some businesses do not have the luxury of choices. You might not have property available to offer as security for a loan.
Whatever funding is available, think through some of the following:
What is the exact purpose? (i.e. To fund more inventory for more sales?)
How long do you need the funding for? (Do a Budget – is it seasonal?)
Can we use the actual asset we are acquiring (e.g. equipment) as security for the finance?
Can you match the finance term with the period of time for which the asset you are acquiring will provide a benefit?
Equity Mate
Lastly, sometimes debt is not the answer.
A business structurally may be under-capitalised, meaning that funding generally needs to very long term and without the impost of immediate repayment commitments.
You may need to talk to your adviser about this point.
Thanks to our Guest Blogger, David Gaff from Collab Agency. David has extensive financial services marketing experience across banking, funds management and advisory sectors. He has a passion for marketing campaigns and initiatives that drive market share and revenue growth results.