Do you need a loan for your small business. It is growing, and you need money to finance an expansion project. Sales up, and you realize a handsome profit. Convince your banker should be easy, right? Well, think again! Pat Latour, Senior Vice President, Financing and Consulting at the Business Development Bank (BDC), advises not to forget anything in your preparation. “If you embark on a project to expand, you absolutely must have a plan, he warns. Otherwise, you risk jeopardizing even the rest of the company is very well. “Many contractors who go to the bank without proper planning and are surprised that their loan application is denied. M. Latour, it is essential to know your numbers and know what the impact of the expansion on profitability.”Growing businesses need a larger working capital, as growth requires additional inventory and more staff, says Latour.
Moreover, it often takes some time before the expansion is translated into improved profitability. By cons, expansion can also cause a sudden rise in revenues. Contractors must therefore provide such a scenario and be prepared to use these additional revenues to aim even further. “On the same subjectAdvice to finance your growthHow to fund your growth plansHow to prepare to present an effective loan? First, take the time to evaluate the expected return on your investment, taking into account not only the cost of assets but also of how activities will evolve with your business expansion.
Then, it is fundamental to make your loan application in due course. According to Latour, companies often wait too long. Before going to their bankers to finance major expansion project, they use their cash or, worse, waiting to be short of cash.”One of the main reasons why businesses or expansion projects fail is the lack of working capital, says Latour. However, it is always easier to get upstream project funding once the cash is running out. “Mr. Latour advises fast growing companies to meet their bankers once a year about to get a pre-approved loan for capital expenditures, loan they can use instead of putting them under pressure working capital.
It also allows companies to react more quickly to opportunities without their having need to borrow whenever they need funds.
Change to grow
Sean Darrah, owner of Pace Processing, a food service company, made the experience. The fast-growing company grew from local to 1500 square feet in 2001 to the premises of 10,000 square feet . But the space quickly became insufficient, and Mr. Darrah wanted to move to a new larger building . He had always used its working capital to finance its expansion plans, but this time, given the high costs, he needed a loan.
To his amazement, his loan application was denied. Despite an increase in sales of 25% to 30% per year, he spent his entire operating cash flow in and out of the balance sheet equipment every year. “We seemed to not have a lot of assets,” recalls Mr. Darrah, who then uses an accounting firm to help prove the true value of their business.The bank revalued its request and agreed to grant the loan, which enabled Processing Pace moved into new premises of 25,000 square feet in 2010. Mr. Darrah also obtained a line of credit for future expenses capital. “We could take the next step, as we constantly were spending all our cash, summarizes Mr. Darrah. It was clear that we had to change to grow. “
Protect your cash
This can result in the funding rates and poor repayment terms. Worse, the company could suddenly find themselves short of money. Then it could be too late to get any funding whatsoever.”It’s like using your credit card to finance the renovation of your home, illustrates Mr. Bernard. Your cash would suffer seriously. “According to Peter Brown, the financial advisory firm Deloitte, poor financial planning is common – and risky – in fast-growing companies. “Strong growth can kill you if you do not have the capital,” he says.Bernard agrees: “It takes more planning in the growth phase, as accounts payable and accounts become much more important.”For him, the solution is to take the time to develop a financial plan for future investments, preferably early in the year.Start by determining the financing you need for your global growth plans.Then, without waiting encounter your financial partners to present your plans and inform them of your needs for the coming year. This is the time to obtain a line of credit for your investments the next twelve months, margin you can use as needed and convert to a long-term loan at the end of the year.
Plan your financing
The idea is to plan your finance to get the best possible borrowing terms. Exercise can even teach you that having the support of more than a financial partner will give you more flexibility.Bernard insists he should never fund major expansion projects out of cash, although it is believed to have pocket money tonnes at that time.”This is a big mistake, he warns. When cash is good, we think it will always be like that. But a growing company needs to invest much more than others, and it is rare that profits are sufficient to cover its investments. “Mr. Brown abounds in this sense: “It is always best to seek funding before needing and not wait to be in crisis. This is good management. Lenders are more likely to provide financing to an entrepreneur who is a good manager. “Read Rob had always used the cash for its fast-growing business specializing in the maintenance of fire extinguishers, Bison Fire Protection, the latter being increased from five to 50 employees in ten years.But when Rob Read and his partner Émile Jolicoeur decided to diversify their activities, including by engaging in fire alarms and sprinklers, they understood that they would have a better financial planning.They appealed to an external consultant to help them define their overall business strategy, which included a financial plan. The exercise led them to establish for the first time a budget and forecasts, and getting an overdraft line of credit and to ensure they have the necessary funds when needed.
Kings ways to fund your growth
Thinking finance the expansion of your business? Here are some tips:
1. Talk to your suppliers
Peter Brown, the financial advisory firm Deloitte, suggests asking suppliers funding for a buy. Many vendors provide loans to sell their products – a win-win situation for the supplier and the customer. And if you are a supplier yourself, consider offering financing to customers. You will have a new source of income and you will stimulate your sales.
2. Reduce payment delays
All entrepreneurs know that productivity is important. But how many are interested in the productivity of their cash? ‘Accelerating inflows is an important competitive advantage, “says Brown. For example you can offer your clients creative conditions, such as a 2% discount to those who pay within 10 days. “By obtaining the funds more quickly, he adds, you gain peace of mind and less use your line of credit.”
3. Give priority to quality customers
“Customers who take their time to pay often do so because their own cash is not fluid, says Brown, and they do not always worth the effort or risk. Many companies want to sell at any price, regardless of profitability. “But a well-managed company focuses on quality clients and high-margin, enabling smooth finances and reserve least surprises when a company is growing. “This is a real key to success,” he concluded.
Money For Business Expansion : How to fund your growth plans
You have big expansion plans for your small business , such as buying a new truck for delivery, hiring a sales representative or a move to larger offices?Your plans will cost money ; how you finance ?Many entrepreneurs make the mistake of financing their growth plans through cash rather than through funding for small businesses.
Pressure on cash
This can weigh heavily on your cash . Even if you currently have excellent benefits and more than enough cash , what will happen if an unexpected obstacle depletes your income for a while ?If your money is tied up in long- term assets , you could suddenly find yourself short of cash .Then it could be too late to go to a bank to obtain emergency funds. Lend to a company whose finances are tight is a risk that the bankers do not like to take . And the fact that you do not have planned will not help.
Growing businesses : risk
A surprising number of profitable companies find themselves forced to close their doors because of such circumstances.The risk is especially great for growing businesses, which tend to have higher accounts payable and receivable and more money tied up in stocks and other assets. Gains in income related to the increase of their activities could be lower than the additional disbursements that entails.The key , say financial experts , is to harmonize the type of financing with the type of planned spending. The sources of cash, such as working capital or a line of credit agreed to short-term or recurring expenses such as utilities , office supplies or pay.
Match funding for the life of the assetHowever, in the case of longer-term assets, it is often better to get a loan for small businesses whose repayment terms correspond to the expected life of the asset. For example, a delivery truck with a life span of several years should be financed by a term loan of the same duration .
Other tips on funding:
Previously set your financing needs. Plan your growth projects at the beginning of each year. You will be able to find your banker in advance (indicating good management on your part) and negotiate the best conditions possible.When you are thinking about applying for a loan for small businesses not only think about interest rates. The conditions may be equally important. What are the administrative costs ? Can you initially defer principal repayments ? What guarantees does the demand bank? What is the payback period ? Flexible policies can release more liquidity for your business.Have on hand a financial plan will help persuade your bankers to grant you a loan. Your plan should specify what funding ; when you need it ; and how you will repay them.
Money For Business Expansion:Seven tips to better manage your money
It is well known, liquidity enable an SME business running smoothly. To prevent your company’s engine idles, compare your current practices to techniques used by the best fund managers.
-1 Establish a cash budget
Your cash budget allows you to ensure that you can easily adjust your expenses in addition to helping you manage your income and expenses proactively. The main components include forecast sales and revenues, estimated cash inflows, such as accounts, the estimated cash outflows, such as cost of goods sold, debt payments and operating expenses. You absolutely must keep your budget up to date and ensure that it reflects changes in your operations and your plans with regard to your business.
-2. Know the sensitivities of your cash flow
It is important to target elements such as prices, volumes or overhead, which most affect your cash flow. Thus the cost of goods sold has a significant impact on your cash flow, and yet it is difficult to change. At the same time, competitive pressures may prevent you from increasing prices. The inventory turnover period and the period of receivables also affect cash flow.
3. Manage the credit you give to your customers
Various means are offered to improve the management of your accounts. The establishment of effective credit policies is an important aspect of the successful cash management. You can also look for ways to encourage your customers to pay you faster. You can give discounts for advance payments or charge interest on overdue accounts. Although late fees and interest can represent in fact a source of income for your business, it is important to take due diligence. Payments extremely late rather risk becoming bad debts and also immobilize a part of your working capital.
4. Keep your payables to date
Regular review of your accounts payable schedule will help you determine if you insure adequate monitoring of your credit obligations. It may be useful to draw up a chronological list showing you the amount of your debts, your creditors and location of your invoices (current or overdue)
5. Reduce your expenses
Look for ways to rationalize: thus, the cost of promotional materials (such as printing or production costs) can it be reduced without compromising quality and impact? When your sales volume increases, you can use temporary employees, contractors or part-time before resorting to full-time staff additional. An independent audit may reveal issues of redundancy and inefficiency that you can adjust.
6. Use your credit effectively
The choice of the optimal credit facility depends on the conditions surrounding your business, your business plan and existing credit facilities. For instance, term loans are ideal for long-term capital purchases, while credit margins can fill short-term working capital requirements or allow to take advantage of unexpected opportunities.
7. Work up your company’s surplus cash
Rate the funds you need to deal with an emergency. Just review the history of your company’s cash flow in order to highlight any trends . Also , check how the potential evolution of the economy, including currency movements or interest rate would affect your income or expenses. Any excess cash flow can be used for the expansion of the business, settle debts or maintain working capital at some level .
