Financing your Business Expansion
Business expansion is always an exciting prospect but it’s not one that comes without challenges. Whether you’re adding a new product line, expanding into the physical market or are completely changing the direction of your business, there’s always a right place and a right time. So are you in the right place at the right time to expand right now?
You might want to ask yourselves the following questions first: –
Why are you expanding?
Is it for financial reasons or because you have an incredible idea that needs to be actualized? Expansion isn’t always the right move, particularly in such an uncertain economy. Perhaps you are thinking of expanding to a new location, for example. Before you do so, consider why the first location was so successful. Maybe it’s because you had focused all of your efforts into it? Spreading yourself between two locations could lead to a case of diminishing returns.
What will the costs be?
They always say you have to spend money to make money and while that is true, it’s worth breaking down the specific costs for your business expansion plans before going ahead with them. Retail expansion, for example, is going to mean lot of associated costs – hiring more staff, renting more space and adding more inventory. If it seems as if you won’t be able to break even it might not be the right time. But if your forecast is solid and you manage to avoid any hidden costs then you might be onto a winner.
How are you financing it?
This is the big one. Perhaps you’ve managed to make enough from your business so far that you are able to invest in its expansion with just your profits. That, however, is highly unlikely. It’s more likely that you’ll need to look at one of the following business expansion financing options
Investors – Investors can always bring a lot to the table besides their money. They can open certain doors for you and your business that might have been locked you before. However, they will also probably want to some say on the direction of the business and depending on how much equity you’ve sacrificed, you could end ups with a business that feels more like theirs than yours.
Lenders- Many small business owners choose an asset based lending approach that allows the business the raise funding against a mix of assets. This uses invoices and balance sheets as collateral and is an increasing popular choice, with the market increasing 32% in 2019. Then there’s the traditional debt-based financing to consider.
Crowdfunding – Finally, the more ‘modern’ option. Crowdfunding enables your business to connect a little deeper with its customers by giving them a stake in the business. It’s certainly not without its risks but it’s definitely not an option to turn your nose up at.