There’s a difference between having working capital and capital for growth. If businesses want to grow, they will need a separate fund to pull from for growth to take off and flourish in today’s market. Do small and medium businesses need capital during and for growth? In our experience, we have seen that businesses will not only need more capital during their growth phase to sustain and continue growing but a well thought out plan of action for when the money comes in.

Within the framework of primary business goals, short-term business targets and milestones are ever-evolving. Every year new targets are created and bigger milestones are set. This is necessary to continue growing and to avoid stagnation. And as you set the bar higher and higher, your business will need more capital to grow. But before you consider talking to a capital advisor, you need to be absolutely certain that you are ready to grow and expand your business. Take a step back and think –

  • Are you meeting your business goals?

  • Do you have a steady stream of revenue?

  • Are you able to meet your daily running costs?

  • Do you have a steady stream of customers?

  • Are your customers asking for better services or products?

  • Is your industry going through a growth phase? Is your target market ready for a new product or service?

  • Do you have a strong team in place? Or do you know how you can ramp up quickly?

  • Will expanding your business affect your current operations and revenue?

Let’s look at it this way. You have a target of $100m revenue. You achieved $75m last year. This year you reached $85m. That is definitely growth – but growth to achieve targets; and not growth to expand. Business expansion happens after achieving targets. It is important to understand the difference if you’re going to convince investors of your expansion plans. You need to be clear about what they are to make a success out of them.

How you expand impacts the business capital you’ll need

Expanding your business to newer verticals is very different from taking it to the next level in the same vertical. You will need a strong team who is experienced in the new industry.

Similarly, expanding geographically will require the right research about the market forces in the new market.
If you are going to offer a new product or service, you’ll need to invest heavily in technology and research.

Another way you can expand your business is by acquiring another company. That requires a totally different level of investment and research. In our years of advisory services, we have seen many clients underestimate a business acquisition’s complexity. Clients have come to us for advice on epic deals, only to be surprised by the complexity of the whole process.

Growth funding is a significant investment, and if done right, it can drive remarkable growth for your company. It is, therefore, necessary to take an unbiased study of your level of preparedness – for the increased demand on your time and resources.

Ready to expand your business? Let us see some of the reasons why your business will need more capital to grow.

What are the different reasons that businesses need capital during growth?

Funding for logistics and overheads expansion

This will perhaps be the most immediate need for funding. Acquiring cutting-edge technology to bring innovation to your products and services is a major investment. And one that is necessary to take your business to the next level. Other common reasons include:

  • Expanding the range of services and products

  • Increasing turnover

  • Increase working capital

  • Moving to new premises

  • Hiring more staff

  • Acquiring new equipment

Funding for marketing strategy expansion

The success of any growth strategy will depend heavily on how well your marketing ROI is achieved. The future is digital. Digital marketing will make a huge difference to how well you’ll be able to convert new leads. You will need to work with an agency that is well-versed with the latest digital marketing strategies.
It is also a highly competitive arena and needs time to start showing results. Research shows that mismanagement of customer expectations leads to abandoning of campaigns and strategies before they can start showing results. However, those who persist in combining long term tactics like SEO and short-term tactics like paid ads see better results. So, you need to be prepared to continue funding digital strategies. That being said, it is still more cost-effective than traditional marketing and advertising media.

Fixing challenges and bottlenecks

  • Solving challenges to accelerate growth
    If your business is facing challenges in daily operations, it is essential to fix them before investing capital in growth-generating initiatives. It can be anything that may reduce productivity at the workplace – from receivables collection process to staff seating arrangement. Fixing issues temporarily is a waste of resources as the problem can show up again later. Even if you need to invest a little more money, get to the root of the problem and solve productivity issues once and for all.
  • Business continuity plan to withstand uncertainties
    The COVID situation has shown us that disasters can strike anytime. The pandemic has fundamentally changed the way we work and live. Companies with a strong Business Continuity Plan (BCP) rebound faster than those who don’t have one. If you don’t have a BCP in place, now is the time to get one done. Ensure that the BCP has a broad scope and uses advanced data analysis technology to identify risk patterns and solutions.
    It is a considerable investment, but one that is necessary for business survival and consequently, growth.

How can you raise funding?

Bootstrapping

Bootstrapping is self-funding your business. You can dig into your current resources and assets. While this lets you have more control over your business, the capital may not be sufficient if your plan is a complex one. If you are looking to ramp up in a big way, your company will need more capital to grow than you can raise by bootstrapping.
One advantage of self-funding is that it shows external investors that you are seriously invested in your company’s growth. It would be a good idea to invest some of your own resources before looking for outside capital investment.

Networking

Dig into your friends and family network. They will be more likely to offer you a loan on a lesser or no security. Nevertheless, it is vital to have a clear repayment plan and any legal document if needed. Remember that you have important relationships at stake.
Your professional network and acquaintances are also a good place to source some capital for your business. Again, it is important to have clear plans for repayment of loans and legally binding agreements. Any disagreement can affect your reputation in the professional community.

Loans and Grants

Bank loans and government grants are a secure way to raise capital to fund business growth. However, the rather long list of guidelines and prerequisites may not work for every business.

Angel Investors and Venture Capital

Angel Investors and VCs are another option to raise capital for your business. They will be looking for a good ROI, so you will need to convince them to invest in your business. Be prepared with a solid presentation and thorough research.

Funding your business growth

Whether it’s for expanding logistics or funding marketing strategies or investing in streamlining processes, you need capital to execute your plans. Your business will need capital to grow. Finding the right growth funding and the right finance partners is crucial for the success of any growth strategy.
These are some of the most common sources you can approach for capital. Or you can click here to contact us at Arrowvine. Combining over 90 years of both public and private sector experience, our team is laser-focused on driving exceptional results for our clients across our areas of expertise both in the short and long term. We leverage our vast portfolio of lenders to fulfil your capital needs quickly and effectively.

Why will my business need more capital to grow? | Arrowvine