FINANCING FOR GROWTH OF BUSINESSES

Financing for growth of businesses deals with the acquisition of capital for the further reach and expansion of your business. At a certain stage in every business, there will come a time when the business will need to expand its reach or horizon. And for you to grow, you will need financing. The following are the guides on how to finance your business and whether your business is ready for growth:

IS IT THE RIGHT TIME FOR YOUR BUSINESS TO GROW OR EXPAND?

This is the first question that every business owner must answer first before taking any other thing into consideration. When you are looking to expand the horizons of your business, the timing is key because it may break or make your business organization. You will need to ask yourself the following questions as a business owner to know if your business is ready for expansion

1. The performance of your competitors compared to your business organization
2. How your organization is performing against its budget
3. Is your market meeting its goals
4. How much financing do you have available from your business organization

These questions are very important in knowing how your organization will perform during its expansion

HOW CAN YOU GROW YOUR BUSINESS?

The next step is to grow your business and the way you can grow is by implementing certain strategies that will suit your business and the industry or market that you operate in. You can apply various methods such as

1. Exportation

This has to do with selling beyond the borders of your home country. It can also be referred to as global expansion and it will create more income and opportunities for growth to your organization. This will also give you an edge over your competitors

2. Diversifying

Going into new areas would also help to increase and maintain a good reputation of your brand and the products or services that your business organization deals with. This will allow you gain access to a new market and target population. Take for example, a manufacturer that deals only in making adult shoes can diversify and start creating children shoes which will open up new customers for the company

3. Franchising

Franchising occurs when a business wants to increase its shares or expand its geographical outreach to customers thereby increasing the profit of the business. This is carried out by licensing your trademark to entrepreneurs that are looking for opportunities.

4. Merger and Acquisitions

Merger and acquisitions deals with the purchase of another company or partnering with these companies which will bring access to a new market and to also increase the profits of the company. Merger and acquisitions will allow you to have an edge over your competitors

5. Acquiring the latest technology

We are in the modern age where things are now done easily without stress. Acquiring the latest technology for your business will increase the productivity and efficiency of your business organization

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WHAT ARE THE IMPLICATIONS OF FINANCING GROWTH FOR YOUR BUSINESS

Growth doesn’t come easily and there are some sacrifices that need to be made or expenses that will be borne by the company if you want to boost the revenue and profits.  They include the following:

1. Hiring more personnel
2. Increased tax payments
3. Employing or hiring consultants and lawyers that will be required in the process of your growth
4. Costs such as acquisition of building, machinery and equipment
5. Cost of moving
6. Cost of venturing into the international trade will consists acquiring special licenses
7. Increasing the size of your management team due to expansion
8. Modification of your management structure
9. Increasing the amount of inventory or stock that you hold
10. Introduction to financial controls
11. Seeking professional help
12. Integrating a new acquisition
13. Seeking new suppliers and customers

HOW DO YOU FUND YOUR BUSINESS GROWTH

When funding your growth, there will be need for funds that will finance the growth. There are some measures that the business organization can take to create funding apart from requesting for external loans. These measures can be implemented within the company and they include the following:

1. Cut your company’s costs

You will need to find ways that can save up money by cutting some costs that are not so relevant to the existence of the company. You can cut your company’s costs by:

• Making use of cheap but quality suppliers
• Negotiating for discounts especially when buying a large amount of quantity
• Reducing staffs in departments that are not important
• Sourcing out for cheaper utilities

2. Using spare business cash

Surplus funds in the company’s bank account that ae required for the day to day activities of the organization can also be used to finance the growth of your company

3. Offering share options

Offering share options has to do with giving some selected employees the chance to work for a reduced salary in exchange for them to have a stake in the company’s equity.

4. Sell the assets that are no longer useful

You could decide to thoroughly examine the assets of the company and sell of the ones that are not useful or are underused in order to free up some funds. There could be a motorcycle or a motor van somewhere that has not been used for years

5. Manage your working capital

In order to manage your working capital more effectively, you can inject cash into the business by shortening the cash operating cycle through holding less stock for a shorter period and collect cash from customers quickly without granting credit

6. Focus on quality clients alone

Another way is to focus on clients or customers that are quick to pay and not those who are slow to pay. This will bring about smoother finances and access to more funds for expansion

SOURCES OF FINANCING FOR GROWTH

The following are the sources that are available to a business owner for the expansion of his company:

1. Bank Loans and overdrafts

This is also known as bank financing and bank these days are very conservative in lending money to companies. You could get access to a bank’s money through a bank overdraft or a loan. Some banks may decide to ask for collaterals and there will an interest that will also be paid on the amount of money that is borrowed. Some banks will ask for your financial model, financial statements and a well detailed business plan before they grant you the access to the loan or the overdraft

2. Loans

Apart from bank loans, there are also other sources of loan that one can acquire. You can get loans from the government in your country or from micro lending companies with an interest payment

3. Hire Purchase and Leasing

Hire purchase has to do with acquiring an asset needed for the growth of your company by paying in bits over a particular period of time which could be a year or more than a hire. Leasing has to do with owning an asset for a particular period of time. Both methods are also ways of financing the growth of your business because you will need to acquire fixed assets that are instrumental in your production efficiency

4. Factoring

Factoring is a method that happens when a company sells all its receivables at a discount in order to get resources or cash in advance. Factoring is mostly employed by companies and business organizations that have a declining credit system or facility.  The factoring method if raising funds for your business growth is very expensive. The exchange allows companies to offer their receivables to dozens of factoring companies at once, along with hedge funds, banks, and other finance companies. These lenders will bid on the invoices, which can be sold in a bundle or one at a time.

5. Equity financing

Equity financing deals with selling shares to shareholders in order to raise capital that will used for financing the growth of the business. This is better than borrowing money from banks and other external sources and later paying in the future. Equity financing consists of making private placements, public offerings, and money from friends and family. Equity financing is mostly prepared because it does not carry any interest and there is no need for future repayment. The only amount that will be paid is from the profit of the company in the form of dividend

6. Grants

Grants can also be gotten from a government body, either state or federal or from other co-operatives who are willing to pool in their resources into your business for further expansion and growth. Grants are mostly given when there is certainty that the company will make gains and give back to the society

7. Friends and family

This is one of the most common ways of financing your business. You can get access to funds from your close family members and friends. Even if they are close knitted to you, you should still supply them with your business plan for expansion with the financial projections to let them know that their investment is not a waste and that you don’t intend to fracture your relationship with them. You will decide with them on whether their investment in your organization is an equity or a loan

8. Vendor financing

This has to with making provision of pre-bates and prepaid discounts that will grant you access to purchase some goods over the terms of agreement. Vendor financing is easier to access and it also comes with less regulations and restrictions.

9. Angel investors

You could also gain additional funding for your business by pitching your company to an angel investor who will make the appropriate investments in your organization

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CONCLUSION

Having a business that is growing and expanding its reach to multiple locations all over the world will guarantee an increase in the value of your company. It also makes you accessible to more business partners, gains, appealing to consumers and investors and private equity groups who are looking to invest in your company

These are countless possibilities for business growth and if you want to grow your business successfully beyond the borders of your home country, there are certain growth financing techniques that you will need to adopt in your business organization. These days it is very challenging to find financing for the growth of your firm due to the economic climate and conditions.

Onamakinde Dare Daniel  is a highly motivated accountant with knowledge in Accounting, Taxation, Management, Audit, Costing and Research. He is keen on tax matters due to its ever dynamic nature.