Starting a business requires a tremendous amount of forethought when it comes to aspects such as financial planning and budgeting. Additionally, being aware of the exact point in time that your business is in requirement of working capital, and obviously, taking action to access and secure it, helps small businesses in the long run.
There are several ways students can learn how to best fund a business – one of them being via reading and solving marketing case studies.
The question is, how does one know that it is the right time for your business to infuse cash?
If your business is expanding as you had expected for it to, you are in a position where you have clients, an inflow of business and thus are headed in the right direction. But for this pattern to burgeon even further, you can’t decide to be satisfied and not make any more advances! A good business’ growth map contains steady, continual growth.
As you can probably recall, when you first started off this business, you required an initial amount of capital and also continuous access to it afterward. It is not much different in the exponential phase of your company – for it to grow, you need to feed it!
But most of all, as a business owner, it is crucial to be able to identify and assess the current situation that you are in. Read on to find out 5 signs that point towards the requirement for capital investment!
1. Managing Cash Flow
To be able to become a successful business, it is imperative to understand and efficiently manage cash flow.
Many businesses struggle with this. Due to not having planned properly in advance, businesses are faced with negative cash flow. Certain businesses, due to their nature, are required to spend a lot more cash than the amount that is available to them.
Most often, this case is particular to businesses that need to stock up on inventory during certain times of the year. Otherwise, some businesses have an issue with managing cash due to various business cycles – or seasonal fluctuations.
The reason can be anything; it is enough to know that negative cash flow can be seriously detrimental to business and is an alarming cause of concern. The viability of a business can usually be determined by its cash flow.
Business funding can be used to assist in properly managing cash flow, especially during periods such as the growth curve. To maintain this curve, it is imperative to be able to effectively manage cash flow.
2. Growth and Expansion
Funding is quite obviously required when your business reaches the log phase – which means that funds need to be specifically reorganized to cater to specific expansion.
As per the nature of your business, your expansion type varies. To different businesses, expansion means different things. I recommend business students to first prepare a detailed financial analysis report to understand the cash flow and assets of the company. It also gives you a good idea of the venture’s expenditure and gross income. These factors in turn help determine the expansion measures and scope for the business.
Some expansion processes that your business might opt for include
- More commercial space / business locations
- Renovation of old spaces
- New products / Services for sale
- Hiring more people
It is wise to look for business financing to help fund expansion projects, simply because such projects can either create or destroy growth potential. Take time out to fund them wisely.
Any business is successful only due to effective planning. In your initial planning strategy itself, there should be enough funds put away as a cushion for risk.
As a business owner, one may even suggest to you that a cash cushion of six months’ worth of operating expenses should be kept away. This is a good idea as businesses go through cyclical differences and seasonal fluctuations – this sort of cushion keeps unseed financial woes at bay.
? Shopping for bargains
If your business is one which requires shopping for inventory, this cushion money can be used towards a bargain hunt for inventory as well as equipment. In the long run, you will see that this saves you money.
? Rainy Day
As you are aware, each business has its own set of highs and lows. By setting aside a decent sum as cushion money, you will be able to overcome the obstacles put forth by unforeseen circumstances – better known as rainy days.
? Business Expansion
Essentially, your business can grow using the money that you keep away as backup/cushion. By making it a habit to put away some cash as cushion, you are basically re-investing in growth towards your business. As this chunk of money becomes larger and larger, it can be used for more items that can help expand your small business.
Although it seems daunting at first, hiring new employees brings in the workforce that is required to lessen the load on existing employees. This means that you need to be able to chalk out your expenses and accordingly decide how much you can afford to pay your employees.
Reviewing all your budgets is a good place to begin. Certain businesses choose to cut down from certain sectors in order to pay for new employees, and some seek funding to help assist with this prospect.
Some businesses even opt for funding a new hire’s payroll with business funding, so this is a viable option that you can consider as well. Hiring becomes even more relevant when you are in need of additional staff to maintain the growth of the business.
To be able to remain a successful business owner in a field with such tremendous competition, it is imperative to be an innovator. With the technology of today’s day and age, this concept becomes that much more prevalent.
You may reach a point in your growth stage where innovation takes the lead in terms of, say, R&D, technology, or maybe even the conceptualization of certain new products or services.
It is wise to invest towards the innovation of your business since it is clearly so crucial to its growth. If you need to innovate, you need to seek additional funding.
To sum up, it is of utmost importance to be able to recognize signs that your business needs investment. Find out whether you fit in the criteria listed and also find out which type of business funding is best suited to your requirements.
Ensure that you research all your business funding options. Here are some that you can look into.
- Alternative small business lenders
- Traditional bank loans
- Lines of credit
- SBA guaranteed loans
- Angel Investors
Author Bio: Mary Jones is the co-founder and editor-in-chief at TopMyGrades, which focuses on career counselling for university students in the US, Canada, UK and Australia. Mary helps students with their marketing reports and assignments. She has extensive content editing experience and has worked with MSNBC, NewsCred and Scripted in the past. She has also authored blogs on Lifehack.org, Wn.com, Medium.com, Minds.com, and many more digital publications.