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6 Tips for Making Smart Financing Decisions in Business Expansion

Are you looking to expand the scale of your operations? 

Whether due to a surge of local demand or a goal to expand to new territories, undergoing a business expansion is a good way to score in on profitable growth opportunities.

That said, this move will entail quite a bit of financing on your part. “A bit” may be an understatement, even. 

Expanding your business involves accomplishing multiple micro-tasks. From acquiring new assets and supplies to hiring extra labourers, you’ll need to be on top of all of these to support your expansion efforts.

And, of course, in order to see these things through, you’ll need to have enough capital and cash for your business to develop.

If you want to make the most out of your finances and loan agreements, you’ve come to the right place. This article will delve into six tips to help you expand your business and make smart financing decisions.

Let’s jump right in!

1. Assess Expansion Readiness

Every business faces a unique set of circumstances, and each entrepreneur has a different approach when it comes to favourably steering the direction of the business. 

While it’s the goal of many entrepreneurs to expand, the pursuit of such a goal needs to be grounded in practicality. In short, you should ensure that your business is ready to leap into this new development phase and that your financial health is enough to sustain this phase.

Looking at your business’s bank account is a good assessor for expansion readiness. The second best resource to assess expansion readiness is your financial statements. 

Take a look at your monthly income statement, starting from six months to a year ago. Are you comfortably turning in profits? Is there enough cash flowing into your business to support the move? Are your liabilities manageable?

Answer all these questions to get to the bottom of your financial preparedness. When running your business is becoming too comfortable, then it’s probably a good sign that you’re ready to take the next step and use or seek financing options to expand your business.

2. Create and Frequently Optimise Your Expansion Plan

You don’t want to run around like a headless chicken when first leading a business, much less when making a move as drastic as expanding.

Having a plan is important since it helps organise your thoughts and get your long-term goals in order. It also ensures that you’re not wasting your money on ineffective strategies.

The process of creating a plan is fairly similar to making a business plan from the start—you need to define SMART goals, choose how you’d like to expand and develop a relevant strategy to achieve these objectives.

There are four main pathways to expand your business. You can penetrate the market with more of your products, you can expand into different regions, you can build a new product line, or you can do a mix of all these things. 

Choose the best-fitting plan for your business and create a goal around it. Then, stick to these goals as you make business decisions in your day-to-day operations.

You don’t want to be completely loyal to the processes you’ve abided by at the start, though. As your business evolves and market conditions change, you’d want to regularly optimise your expansion plan. 

By doing so, you can adapt to new opportunities and maximise your business’s growth in the particular segment you’re targeting.

3. Consider Various Loans and Financing Sources

Not all businesses have the immediate funds to completely shoulder their expansion from day one. Fortunately, if you’re one of these businesses, you’re not out of luck. You can always consider loaning from financial institutions and lending companies.

Debt financing is one of the most popular ways businesses can access a lump sum amount to begin their expansion. It gives you quick access to capital but also comes with a debt that must be repaid according to the contract terms with an agreed-upon interest fee.

Many businesses apply for bank loans to sustain their expansion. That said, businesses also employ a mix of smart financing tactics to reduce the cost. 

For instance, they may choose to lease a piece of equipment or do a hire purchase agreement. They may also opt for collateral-based loans for better rates.

Some businesses may be lucky and have an angel investor who can help them start their expansion. Government grants are also viable options that small businesses can consider as their capital injection.

Explore financing options made available to you locally—and do your research! You can follow this link to learn more about the difference between two popular equipment financing sources.

4. Improve Your Credit Score

Not every business will be eligible for bank financing. This can be severely limiting for businesses in their pursuit to expand. One reason why these businesses are ineligible is because their credit score is below the accepted threshold.

A credit score signals to lenders that you follow through with your monthly repayments. This is the type of customer that these institutions want in contrast to flaky or frequently-delaying buyers.

Meeting the minimum threshold boosts your odds of getting accepted for a loan deal, but try as much as you can to constantly go above it. This can help you get more favourable loan conditions with lower interest rates, even if you’re not using collateral.

Improving your credit score requires you to do several things. You should ensure that your credit reports are error-free, for one. Secondly, you should avoid taking on too much debt. Also, you should lower your credit utilisation ratio as much as possible. And of course, pay your debt!

By doing all these things, you’ll be able to up your chances of getting a good credit score. This, in turn, helps you gain access to the full range of financing options—which can help you find the most suitable financial method to expand your business.

5. Forecast Cash Flow for Repayment

When vetting your financing options, first ensure that your business can pay for it in the future without it leaving a huge dent in your operations. 

The easiest way to do that is by making projections on your business’s future cash inflows and outflows. Look at your historical cash flow patterns and take into account the different variables influencing it, like the season or product releases.

Then, look into the cost of expansion itself—hiring, buying new equipment, inventory acquisition, and so on.

From these data points, calculate an approximate projection of income and costs and determine from there whether you still have enough left over to repay the loan. If the answer is no, reevaluate your goals and look for more conservative ways of acquiring money for expansion.

6. Invest in a Professional Service

Is your business in dire need of a sound financial mind to help you through your expansion phase? Getting a financial expert on board can help you out, even if they cost a service fee upfront.

From helping you know when to relieve debt to offering you alternative ways to secure funding, these professionals can bring some sense amidst all the chaos surrounding the expansion move.

Furthermore, a financial expert holds the experience to guide you through budgeting, risk assessment, and long-term financial forecasting. This helps give you peace of mind in knowing that your expansion efforts are both sustainable and aligned with your business goals.

By hiring a financial advisor, even if it’s just for one-time consultation services, you’ll feel more informed about your expansion decision, which can increase your chance of success even further.

Good luck with your business expansion!

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