The growth ‘Catch 22’ businesses face daily…

A question that business management teams will often ask themselves is ‘can we grow now and invest later?’

The answer often comes down to the speed of growth either projected or required.

Is it better to grow sustainably by reinvesting in the company over years, taking nothing out? Or is it better to expand quickly?

You’ll need two things to achieve growth quickly. The first is a good team with a hands-on approach. The second is, to 'jump-start' growth, you will need significant additional resources – usually cash.

But it pays to be a bit cautious.

The reality is, growth puts a strain on cash. That's why more businesses fail when growing than when contracting. Making sure that you have a rigorous cash flow forecast and keeping a close eye on it is critical.

Many high-growth businesses go bust, simply because of 'over-trading'. Despite rapidly growing sales, their cash flow falls apart because they can't fund the increased output.

Available funding solutions will differ depending on the company’s stage of development when the funding need arises. Not all funding solutions will be suitable or even available to all companies. Your options will depend on what stage of growth your company is experiencing.

Suitable funding solutions need not be hard to arrange if the management teams are not taken by surprise. If they are taken by surprise, or are not prepared and need to go cap in hand to the bank, they are then more likely to be offered the wrong solution, at inflated prices with onerous terms and conditions attached. That is if they are offered funding at all.

That’s why it’s imperative that management teams review their funding needs at least once a quarter. They need to be aware, always, of any cash flow difficulties that may be on the horizon and of the solutions that are available to them.

And when the need for funding is predicted… be prepared. Research the marketplace and then make the funders compete for your business, just like any other supplier that you deal with. Money is just like any other product that you buy. Funding seldom comes from a sole source. In most cases, it is a mixture of diverse types of funding.

But remember, risk taking is not in the nature of funding providers. In the current marketplace, personal guarantees for any type of debt funding will most likely be required.

So, while you can grow your business and then invest later, at some stage you will need to invest in the business, either from your own resources or seek external funding options before you can grow further. The current global economic climate and the parlous position of the banking system are adding significantly to the pressure on UK businesses.

However, the successfully growing businesses have one thing in common. Prior planning and preparation. They have a business plan for growth; they prepare business plans for investment, they monitor their cash flow closely and they can predict when they will require cash injections to aid their growth, be it organic or accelerated.

At Pegasus Funding, we not only help enterprises to access the right funding options for their businesses, but we help them to devise, update and stress test their business plans to ensure that any future application for finance is carried out from a position of power.

For more information on funding options or business planning for growth call Richard Olsen on 0203 327 0567.

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