Financing Your Business and GrowthTomChilders
It’s only fitting this section comes after cash flow because cash flow helps you really understand the context of financing needs for a business. For example, is it just a seasonal shortfall or are there other factors driving it such as growth?
According to the SBA Office of Advocacy FAQ’s, dated February 2014, small business loans are used for four principal reasons:
- Starting a business
- Purchasing inventory
- Expanding the business
- Strengthening the business.
Whatever your reason(s), there are certain things you need to be prepared for regardless of which option you pursue to seek financing.
Today there are more options than ever when it comes to financing. With the advent, and quite frankly onslaught, of online lenders, the options have exploded. Yes, the traditional sources of banks, SBA, personal acquaintances, credit cards and merchants still exist, but the alternative lenders and other online sources are here now and might be worth evaluating. Want to peak into a few of these, just Google the names, OnDeck, Lending Club, Funding Circle, Kabbage, or peer to peer lenders and you will find them and lots of competitors on search result pages. Of course, this is not to say this is the way you should go. You must do your homework and if you need help, talk with your accountant or financial advisor.
As you source your loan, the things you need to be prepared to provide are outlined in this SBA piece [and this Six Step Guide is another great resource]. Yes, it’s work and there is no guarantee this is all they will ask for and if you provide it, there is no guarantee you will get a loan. One thing to think about as you compile the info and data is the assumptions you use in projections and forecast, especially if the forecast or projections differ substantially from what you done historically. Adding more people and equipment in and of itself will not grow sales, but explaining how you are turning down one new customer on each job and/or can’t get to your backlog of X contracts will grow sales. Explaining how your top builder is breaking ground on a 2,500 home development and providing documentation of same is a solid plan too. Again, just be ready to help explain and justify the future need for capital and remember, there are no guarantees.
A final observation on growth comes from watching many contractors, some of which are good friends, over the years. It has nothing to do with financing but a lot to do with health and happiness. Over the years some contractors have grown only to find that they should not have done it. Their disenchantment has ranged from personal to financial reasons and all points in between. The point is growth is not always what it is cracked up to be. To take on more work that is less profitable and/or too taxing on your happiness and health might just fall in this category. Now if you are turning away work and/or leads at your prices and/or higher, hmmm, might be worth considering but only if you are up it!