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Growing a business means different things to different people. Some businesses grow unintentionally due to demand for their product or service while others grow intentionally a result of executing on a plan. In either case a business needs money to grow and its not always obvious where the money can be found. There is money available from numerous sources to help you grow your business but you have to understand where to find it and what the trade offs are.
Where can your business find money to grow?
Growing out of cash flow
Very few businesses can grow using their own cash flow. This is because many business don’t have an enormous amount of money sitting around that can be invested in people, equipment, facilities, inventory, etc. A typical business uses all of its cashflow to keep its operations running and isn’t in a position to make large single cash outlays to fund growth strategies. The exception to this is knowledge based businesses that generally have high margins and low operating costs.
Growth by borrowing
For businesses that have a track record and confidence in their historical results, borrowing money in advance of future results can be a risk worth taking. Borrowing money in the form of a repayable loan over a certain amount of year allows a business to increase its profits today and repay the amount as the cash is available. Loans and financing secured by the assets of the business (and in some cases the owners) should only be a consideration if there is a proven history of revenue and consistent margins. It is not a prudent decision to borrow funds for your business if you can’t demonstrate a plan for repayment.
Growth by outside investment
If your business doesn’t have cash in the bank to invest in growth and isn’t in a position to borrow money because there isn’t enough history, consistency or confidence in future revenue, consider an investment from an outside party. Investment capital can be great source of money to help your business fund its growth. Unlike borrowing money secured by the assets of your business (or your net worth) and investor will instead look to purchase a portion of ownership in exchange for providing money. Your business will not have to make monthly interest payments but will have to give up a portion of its profits. Every decision has trade offs and taking an outside investment is no different.
There is a cost to how you fund the growth of your business. If you use the cash from your business then you potentially could add pressure to your cashflow. If you borrow money you have fees and interest to pay. If take an outside investment you will give up a portion of ownership and profits. There is no perfect choice as each of them have different risks and rewards. A business that is experiencing or planning for growth is an exciting time for any entrepreneur or business owner. As long you have a plan for funding your growth you will not be distracted and can stay focused on getting your business to the next level.
If your business is trying to figure out how to fund its growth, get in touch with us. At mlenow.ca we we believe accessing money can help your business do more and helping you understand how to access money to grow your business will result in higher profits and a more valuable business.
You should visit mlenow.ca because every business needs access eventually needs access to money.