Business strategy: financing your dreams
To take your business to the next level, you will inevitably need to pour money into it before reaping the rewards.
Look at where your business is now and where you want it to be in five years.
Whilst there are different means to get there, you will need to source finance to realise your vision.
Figure out how much finance you will need
The first, and crucial, step is to narrow down how much money you will need to elevate your business.
This can help you to visualise how possible your dreams are, as well as rein in any ideas that seem unprofitable.
So, think about some of the changes you aim to implement. If you want to scale up your business, you must have the infrastructure in place to support this growth.
You must factor in all the costs associated with this, including buying new equipment, relocating to a larger office, and recruitment and training new staff members.
The return on this investment should be also considered. If the initial costs to your business are considerable, yet wouldn’t yield much return, you should reconsider your goals.
Explore your financing options
Once you know how much finance you need, you can start to explore which options will fit with your overall strategy.
Getting into debt usually has negative connotations, but to propel your business, you will probably need to spend more than you have available.
There is a large array of debt structuring avenues available, such as:
- Long-term business loans – if you require a large sum of money to get your plans underway, long-term loans are likely to be a viable option. Compared to a short-term loan, this gives you more time to repay the loan in full whilst making the repayments more manageable.
- Asset financing – this short-term solution allows you to use your business’s assets as a security for borrowing, much like a mortgage. These are usually easier to obtain than bank loans, but place your assets at risk.
- Invoice discounting – if your company’s main income comes from invoices, you can use unpaid invoices as collateral for loans in the period before the client pays you.
- Debt factoring – this involves selling your business’s outstanding invoices to a third party, from which they lend a proportion of the invoice to you up-front. Once the client has paid the company, you should receive any remaining money.
Which option is best for your business will depend on how much finance you need, along with how quickly you need to access it and when you will be able to repay it.
Short-term financing is likely to be best for encouraging a healthy cash flow. However, for larger expenses, you should think about long-term financing such as business loans.
Regardless of the method you choose, you must be sure that the costs associated with borrowing, including interest rates and debt repayments, are cost-effective overall. In the case that these are not sustainable, you should revisit your strategy.
Keep your management accounts in check
After you have decided how much finance you need and how you will obtain it, it’s time to map out how you will spend this.
To successfully manage your business, you must monitor its performance through monthly or quarterly management accounts.
When working towards your goal, it is more important than ever to keep a close eye on your business to ensure your strategy is effective.
In the case that you wish to bring in external investors, either now or in the future, they will expect you have this information readily available and healthy accounts can help to persuade lenders to come on board.
This is the final blog in the series focusing on the ‘now, where, how’ strategy. Find more information on the different components here.
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