If you’re considering growing your business, it’s a sign that things are moving in the right direction.
By Tucker Mathis
Congratulations! Getting a small business up and running is no easy feat. Take a moment to celebrate the fact that you’ve got cash coming in and customers who appreciate what you’re doing.
Now that you’ve taken a well-deserved moment to recognize your success, it’s time to get down to brass tacks. Things are clearly going well if you’re considering growth, but how do you know if your business is truly ready to be scaled? Before rushing into any big moves, consider these four crucial questions.
How Strong is Your Team?
You’ll need a solid team in place to support the growth of your business. Are your employees ready to face the challenges and demands that come with expansion? Your team may be doing a fantastic job where you are today, but do they have the skills necessary to take your business where you want it to go?
As you grow, you’ll have to get used to the idea of letting go of some control. It will become necessary to delegate some of the decision-making that you’re probably used to handling yourself. You’ll want a team of employees that’s not only reliable, but also experienced in leading a business of the size you desire.
Is Your Industry Growing?
If your business operates in a booming industry or your target market is growing at a rapid clip, the opportunity of growth will likely outweigh the risk. It pays to do your research, as you may face additional challenges if your industry is on the downswing or your market is tightening up. No matter how the landscape is looking, it’s always a good idea to grow your business with a future-proof mindset.
Do You Have Positive Cash Flow?
Expansion can be expensive. Consider the increased costs your business is likely to face, from payroll and inventory to rent and utilities. It’s one thing to be profitable (admittedly, a good thing), but you’ll also need to ensure that you have enough cash coming in to cover the costs of ramping up and running a bigger business.
In order to grow, you’ll need a history of positive cash flow. Hopefully you’ve been managing your cash flow and know exactly where you stand when it comes to the money coming in and going out of your business. Intuitive online tools can help you track and project your cash flow, so you can ensure that you’ve got adequate funds for growth.
Do You Have Access to Capital?
Assuming you’re confident about your responses to the questions above, you may be ready for growth. That said, you’re likely to need capital above and beyond what your positive cash flow can cover to scale your business. If you’re a startup, it can be difficult to secure a traditional bank loan, due to factors like a limited business history and lack of collateral. Fortunately, you have options with less stringent loan requirements.
Consider these sources to access the capital your new business needs to grow:
Alternative lenders are often more tolerant of risk than traditional banks when it comes to lending to new businesses. Better yet, approval rates tend to be higher.
According to the Federal Reserve’s Small Business Credit Survey, online lenders approved 82% of small business loans to employer firms in 2018 while small banks approved 71% and large banks approved 58%.
If your expansion plans include purchasing new equipment, you may want to consider an equipment loan. This type of loan tends to be easier for new businesses to secure because the equipment you purchase serves as collateral, which reduces risk for lenders.
Does your business invoice its customers? With invoice financing, a lender loans your business funds against the invoiced amount that you’re owed. Invoice lending is fast and easier to obtain than traditional loans. It’s also a good option if your credit is less than stellar, as approval tends to be based more on your customer’s credit than your own.
Asking yourself a few tough questions can help you determine if your business has the room — and resources — it needs to grow. Increased demand can provide an ideal foundation for growth as long as you’re prepared to manage the increased customers, sales and resources that come along with it.
Tucker Mathis is the CEO of FINSYNC, a consolidated cash flow management platform focused on helping businesses grow with intuitive back-office software and access to fast, affordable financing. Connect with Tucker on LinkedIn and follow @FINSYNC on Twitter.