When your business is growing and it’s time to shop for a major purchase, it is easy to get caught up in the excitement. Whether it’s a major technology upgrade, new equipment, or expansion, you will probably spend hours shopping for the best product, comparing reviews, and talking with vendors.
Then comes the hard part. How do you pay for it? Here is where a financial plan and a lending partner like Allied Financial can help you make the best decisions.
The Dangers of Growth Without a Financial Plan
Growth can put a strain on your cash flow. Small-to-medium B2B companies often make the mistake of financing growth out of cash flow or by combining multiple small loans for individual items.
The result can be high financing rates and poor repayment conditions. Even worse, the business may get caught in a sudden cash flow squeeze, making refinancing more difficult to obtain.
If you are expanding, you need a financial plan that accounts for typically higher accounts payable and accounts receivable. Having a good plan will also minimize risks and safeguard your cash flow.
Use a Financial Plan to Protect your Business
Your business is growing, Great! Take time to create a financial plan for upcoming investments to meet the needs of that growth, preferably at the beginning of the fiscal year.
The first step in your plan is to determine how much financing you’ll need based on your overall expected business growth.
Next, meet with your financial partner early on to discuss your plans and brief them about your needs for the coming year. This is the time to secure a credit line for your upcoming investments, which you can draw on as needed and then convert into long-term debt at the end of the year.
With higher accounts receivable from expanding business, account receivable financing is tailored to your working capital needs.
Plan to Get Financing
To get the best possible conditions for your debt, plan your financing. Planning for your debt may show that you need more than you expected and help you prepare for flexibility.
Never pay for large expansion projects out of your cash flow even if it looks like you’ve got excess cash on hand. A business must invest more when it is in growth mode. Even when cash flow is strong, there is no guarantee that it will stay that way. You never want your growth investments to consume your profits or restrict your cash flow.
Use Growth to Organize your Finances
If your business has primarily been self-financing and you see growth on the horizon, this is the best time to create a solid financial plan. You may even want to consider an outside consultant to help plot your overall business strategy and layout your financial needs.
After budgeting and forecasting, add a line of credit to your financial mix to ensure you have funds lined up before you need it.
Equally important, schedule regular meetings with your lender to discuss future needs. Credible lenders like Allied Financial will advise you and partner with you to ensure your continued growth and success. Contact us today.