Neighbors FCU Assistant Vice President of Commercial Lending, Kent Landacre, goes over his guide to growing your business. To learn more about what Neighbors can offer businesses large and small give Kent a call at 225-819-5792.
Growing Your Business
By Kent Landacre
Is your business growing? Business growth can be a good thing; however, if it isn’t managed properly it could spell trouble for your business. Believe it or not, a profitable business can go bankrupt. This is especially true for a company experiencing rapid growth and is short on cash.
When your business is growing it is generating a higher volume of sales. The increase in sales creates a need for ASSETS such as inventory, equipment, machinery, or employees to produce those sales. In order to purchase these assets you need funding in the form of CASH. This could be a problem if your company extends credit its customers to purchase your product …aka account receivables. It could be an even bigger problem the longer it takes to collect those account receivables.
There are only TWO ways to fund your business: DEBT and EQUITY.
The obvious way to avoid cash problems is to not get your business in over its head. If you don’t have access to additional funds this could be an easy way to go; however, this could mean saying no to additional business until you have retained enough earnings, EQUITY, to “self-fund” the growth. However, if you have cash available personally you can always contribute that cash to the business, EQUITY, to fund the growth.
You can also seek out an investor to give you the capital needed to fund your business’s growth. If you have ever watched Shark Tank, this is why business owners go on the show. Business owners are hoping to find an investor, The Sharks, to help fund their business’s growth. Capital from investors typically comes at a hefty price. Typically a percentage of ownership, EQUITY, in the company.
Another way to fund your business is with DEBT. Typically a working capital line of credit or term loan from your financial institution would be beneficial in this case. These can either be unsecured, no collateral, or secured with Accounts Receivables, Inventory, Real Estate, etc. Unsecured loans can be difficult for startup businesses to obtain with no proven financial history, and more than likely most lenders will want to secure the line of credit or term loan with some sort of collateral.
Another form of DEBT that could be used, if used properly, are business credit cards. Business credit cards essentially create an account payable that is usually due within 30 days, which could help improve your cash flow cycle.
To learn more about what Neighbors can offer businesses large and small give Kent a call at 225-819-5792.