When Is the Right Time to Finance Growth?
The fundamental objective for business owners is to experience growth. Even though many owners can grow their business without financing, it is quite common for companies of all sizes to need to finance some aspect of growth. However, it is incredibly vital to monitor growth opportunities and to pick the correct time to leverage borrowed capital. As a business owner, how do you know if it is the right time to fuel more growth through financing? Below is a list of a few indicators that show it may be the right time to finance through a business loan:
Your business is healthy and has a positive cash flow
While this may sound a bit basic, potential lenders want to know that you will be able to make the scheduled loan payments. Consult a qualified professional prior to applying for any potential business loans to avoid wasted time on both your side and the potential lender’s.
You have a vision for your company and have drawn up a detailed plan on how you will use the financed capital to fuel new growth
Applying for a business loan is a serious step and should be treated as such. You must have a detailed plan on how you will use the borrowed capital ahead of time. The more answers you have prepared in advance, the more likely a lender will be to offer you a loan and the more likely you will be to succeed.
Your business is prepared to meet increased business demands
If you do not know specifically how you will handle the increased sales/service brought about by the borrowed capital, do not take on any more debt. Merely talking about business growth and being physically prepared for it are two different things altogether. Have a specific plan in place and take any possible preparatory steps ahead of time.
You have consulted a finance manager, and the numbers are plausible
A common thought process in business today is that all you need to grow is capital. However, this is not necessarily true. Before borrowing funds in an attempt to finance growth, consult a financial manager to make sure the economic aspects of doing so actually make sense. Take a look at the physical numbers, not just estimates. Is your business going to be able to make the loan payments? Does the anticipated ROI make sense for the loan amount? Do you have a backup plan in case things do not go as expected?
Even if your business has all four of the indicators above, it still can be difficult for small business owners to honestly know if financing growth is wise now. There is a delicate balance between growing too fast and stagnating. It can be harmful to your business to pursue growth too aggressively but being too slow and conservative about growth is a recipe for disaster. How do you know if it is time to borrow capital to finance growth?
In addition to the factors listed above, here are a few more ways to determine if this is the right time for financing additional business growth:
Your Industry Is Growing
A growing market is a definite sign to consider expanding. For example, food delivery services are on the rise. If your grocery store offers basic delivery to select customers, it may be time to add a few more vehicles or employees to add more routes.
Complementary Products or Services Are Available
At times, there are additional products or services that you could easily add to draw more revenue or customers. For example, a florist might find it natural to add a line of candy or start offering edible arrangements. Or if you provide flowers for quite a few weddings, you could consider hiring an ice sculptor as an additional service provided.
Current Customers Express Interest in Buying More
This is a “challenge” that business owners would love to face. Be sure to listen to your customers and do all you can to meet their needs. No one knows your products or services better than your current customers.
You have Outgrown Your Physical Space
Depending on the type of business you have, physical space may become limited as you grow. This especially applies if you carry inventory on hand or if you need a workspace for service/repairs. Just a side note: While extra space is good, remember the obvious – a bigger space does cost more to operate. Scale appropriately.
When it comes to determining whether your business is ready for financial growth can be overwhelming. It is always a good idea to get in contact with a financial adviser who is familiar with the business sector and can help you make your decision.