You would be forgiven for thinking that a successful business making a comfortable profit year-on-year wouldn’t need to finance its activities. After all, why get into debt if the company’s books are in the black?
There are a number of good reasons why successful businesses seek finance.
- Starting up
- Funding growth
- Restructuring debt
- Working capital to keep cash flowing
- Invest in latest tech and machinery to keep ahead of the competition
- Taxes and salary liabilities
- Flexibility to take advantage of supply offers and discounts
Funding your start
When you are starting a business, you’re going need some cash to get it off the ground. You are not likely to be able to self-fund your new business – unless of course you already have your own cash reserves. You will need to seek external sources of funding. These can be in the form of loans, grants, equity funding, peer-to-peer loans; the list goes on. Check out our quick guide to understanding your business funding needs for more information.
Funding growth
Once you have been trading for a while and your ready to take your business to the next level you will probably need some additional funds to make your business plan a reality. You might need to fund a number of things to grow, but you need to keep your eyes open.
You might need to hire staff or bring in new expertise. New premises might be needed. There might be a requirement to increase your range of products or services or you might be considering international expansion.
An expanding order book might mean you need to fund the purchase of materials or equipment to service that growth. Whatever the case, you will need external finance to fund this growth.
Debt restructuring
During the day-to-day operation of your business you may well have had loans or other financing and have a number of products from different sources. In order to manage this, it might be a good idea to seek funding from a single source in order to consolidate your loans and other credit.
Restructuring your existing debt can make financial planning easier. It reduces the number of monthly repayments you have to keep track of. It could also reduce your total monthly repayments. Refinancing your existing business debt can also help your company grow by freeing up cash in your business for working capital and expansion.
Keeping cash flowing
Cashflow is probably the most common reason why businesses like yours seek external sources of funding. For some advice on managing your cashflow check out our five tips for improving your cashflow.
Cashflow is the life blood of your business and you need to ensure that you manage it as such. On a basic level, if you have too much debt, can’t pay your bills and have no money coming in the flow of cash into and out of your business is stemmed and it will end in the death of your company if you don’t do something about it.
There are many solutions to financing for cashflow including invoice discounting, cutting expenses, taking out a short-term loan and manging your customers and encouraging on-time payments.
A good commercial financial broker can help you manage all these.
Investing in capital equipment
We mentioned funding for growth earlier. One of the things that will affect your growth is the equipment you need to manufacture your goods or deliver your services to your customers.
You might need new machinery, additional vans, new tools or technology.
Seeking out funding to cover the costs of this capital investment will allow you to keep your cashflow under control.
Tax and salaries
There are two immutable truths in business as in life – death and taxes.
Paying your business rates and taxes is an inevitable fact of life as an entrepreneur. You will also have to cover the wage bill of your staff.
It may be that you could be faced with a tax bill or salaries at a difficult point during the lifecycle of your business. Or you could be riding the storm of an economic downturn. Either way, financing is a convenient way to meet your obligations in these instances.
Flexibility
As a successful entrepreneur one of the most valuable capabilities a company can have. There are times when suppliers will offer significant discounts on equipment or raw materials that would help you increase your profits. Frustratingly, you may not have the ready cash to take advantage of the situation. That’s when business finance can come in handy. You can borrow the funds needed to purchase the stock, take advantage of the discounts which will cover the interest from the loans and enhance your profits later.
You also need to be flexible enough to take advantages of any changes in the industry or the wider economy. Business finance will give you that flexibility.