Growth is the goal of every business. Yet that’s not to say that it’s always good for business. If that statement sounds odd, let’s consider both the positive and negative aspects of growth.
Without it, businesses stagnate and can find themselves in jeopardy if a major customer leaves, so it’s important to pursue opportunities to grow. However, sudden growth may be unsustainable and may actually worsen cash flow problems, as the business will need to invest in people and raw materials to serve new customers before being paid.
So what are the signs that it’s a good time to borrow in order to grow your business?
1 Sudden increased demand for your products or services
This may sound obvious – and indeed it is. But if you suddenly find yourself rushed off your feet, it’s a clear sign that your product or service is in huge demand, meaning you could hit the big time by investing in your future. This could mean moving to larger premises, opening a satellite office or expanding your team. Whatever it takes to keep up with demand.
2 Your market is expanding
Even if your own company isn’t enjoying a sudden upsurge in orders, clear expansion in your market is a strong indicator that you should be taking things to the next level. After all, if there are customers actively seeking suppliers in your sector and you fail to meet their needs, you may be certain your competitors will step in.
3 You have an outstanding management team
Any company is only as good as the people running it. If you’ve made the right hiring’s and you’ve assembled a world-class leadership team, now could be a good time to borrow in order to expend the business. On the other hand, if there are clear operational flaws in the company you should think carefully about investing in growth and should instead focus on addressing the underlying issues.
4 Your financial projections are realistic and carefully calculated
Even if you have a great management team and are experiencing plenty of new orders within an expanding market sector, you should think carefully about going hell-for-leather for growth if your budgeting and financial planning are shaky. This is precisely the situation in which you will hit a sudden and unexpected cash flow hurdle – potentially caused solely by your growth – that could up-end the entire business.
5 Your company is profitable
By keeping detailed and accurate accounts, you will be able to ascertain whether or not your business is profitable. This is pretty fundamental, but there are plenty of companies out there that are doing lots of business and growing fast but not generating substantial profits for their investors. Turnover is never the true bottom line in business – it is profit. Make sure you don’t lose sight of the wood for the trees.
Once you’ve determined that it’s time to borrow in order to grow, you should start talking to lenders. Before you do so, you need to know how much you wish to borrow – ask for too much and you are likely to be rejected, but ask for too little and the extra capital will be insufficient to fulfil your plans. It’s also important to be clear precisely what you will do with the money, both to satisfy your lender and to ensure that it is not squandered on general spending and overheads.
If you’re borrowing from a bank, they will probably require you to have an excellent credit score and comprehensive paperwork to support your application. This could include your articles of incorporation, balance sheet, three years’ accounts, three years’ bank statements, three years’ tax returns and CVs for the principals. Even with all this information, you could find their decision-making process slow and cumbersome.
For these reasons, you should talk to Cashsolv. As an alternative lender, we have different criteria from banks and a much less onerous application process for business finance, and as specialists in finance for business growth we know exactly what you need to get ahead.
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