If you’re looking to grow and expand your business, there are a variety of ways to go about it. But if you need an infusion of cash, finding the right lender or funding source may be tricky if you don’t know how to go about it.
Finding funding for your business is crucial for expansion and growth plans. Expansion costs money, and often those costs accelerate well before the expansion plans become profitable. Therefore, it’s a better strategy to pre-fund your business growth plans so that you don’t eat into any reserves or profits you have. Getting funding for your business falls under three categories: cash generation, cash management, and funding.
Cash Generation Strategies
The first thing to do with cash generation strategies is to analyze your new funding needs and how much you can generate. The easiest way to increase your cash generation is by simply raising your prices. Raising the prices of your goods and services can improve your reserves but may not be tenable depending on the markets you operate your business in.
Another option is to create a subscription service and prepayment options. These options are suitable for specific industries such as food and beverage, gyms, and other service industries.
A third option is to tighten your accounting and collect on account receivables. Most businesses have a floating amount of account receivables, and collecting on those floating accounts can immediately increase your cash generation.
Cash Management Strategies
Think of cash generation strategies as increasing your customer base and increasing sales. On the other hand, cash management strategies focus on areas where you have overhead or unnecessary expenditures that you can cut back upon to save money.
Areas of waste may include:
- Monthly subscriptions for services and unneeded vendors
- Low ROI on marketing and advertising
- Lowering labor costs and material operational costs
Some areas of inefficiencies can turn into a profit source, such as subletting out unused space. For example, consider renting your kitchen to an entrepreneur for dinner service only if you have a breakfast restaurant. You’ll be able to rent out your space and equipment, lowering your overhead in the process.
Auditing all your cash flow inefficiencies will allow you to cut current overhead and project where future costs may grow, allowing you to budget and protect from those expenses.
A third option to secure money for your business expansion is to secure funding from outside sources such as banks, other lenders, or investors. There are benefits to finding outside lending, such as securing much more money with repayment terms spread out over a long time.
Funding options to consider can range from friends and family, guerilla funding such as crowdfunding, borrowing from banks or private lenders, and even borrowing from the Small Business Administration. You and your business must first undergo a credit check to find private funding.
Starting out, you may have to use your personal creditworthiness to secure business funding. Depending on your credit rating (or your business), you may find the terms of a loan to be beneficial or not. In essence, the lower your credit score, the higher the interest rates needed to borrow. In addition to having to pay higher rates on your loans, other issues with lower credit scores may include:
- Lower loan rate options
- Higher rates of insurance on your loans
- Utility cost increases and security deposits for those services
If you suffer from lower credit rating scores, there are ways to rehabilitate your credit. For example, you can consider paying down any high-interest rate cards and loans, pay above the minimum payment to accelerate paying off the borrowed amount faster, consolidate your high-interest rate cards, and even take out credit building loans.
Once you begin rehabilitation of your credit, you should start to see better lending options for you and your business. To grow your business is going to cost money. Where and how you secure that money is part of the challenge.
Some businesses are able to secure funding in non-traditional ways or through conventional cash generation strategies. Others need to explore third-party financing, which provides cash relief with payments spread out over the length of the loan, lowering the impact of repayment on your day-to-day operations.
While the challenge of securing funding is part of the equation for your business growth, recent studies found that while over 69% of businesses could use some additional funding, overwhelming financing was turned down for various reasons. Some of the top reasons businesses turned down funding opportunities included:
- Unfavorable repayment terms
- Amount of funding lower than needed
- Collateral requirements
- Avoidance of taking on additional debt
- Interest rates and costs of the loans are too high
Once you rehab your credit and make lending more appealing to your business, the best way to guarantee funds for your business growth is a three-part strategy of utilizing third-party funding, cash management auditing, and cash generation strategies.