Starting and then running a successful business can be one of the most worthwhile things to undertake in life. Having the initial idea, testing it and then launching the venture combines excitement with a certain amount of terror, so when it works, and works well, the next thing to consider is expansion.
This is where careful financial planning and management is key to continuing success. Not all business owners are financial wizards, though most learn enough about the numbers to make sure they can read a balance sheet. The owner’s main job is to front the operation, so the people employed to run the business need to be skilled and enthusiastic as well as scrupulously honest.
One of the main difficulties that businesses face is trying to expand too quickly. This hastiness can be detrimental to the company – expansion requires careful thought, and a good finance manager will be able to walk the owner through all the pros and cons of the financial implications of taking the business to the next level. Questions to be considered are whether or not there is sufficient capital available to invest, and if not, where the additional capital will come from. This may include working capital to ensure that there is good cash flow as the business develops or financing for major equipment or the purchase of premises.
Borrowing to expand the business
If borrowing is the agreed upon route for expanding the business, then some rigorous planning is essential. For most businesses, borrowing is a necessary part of the financial portfolio. One major reason that businesses fail is that they take on too much debt and compound the problem by taking on further debt in an attempt to fix the problem. A good financial or business adviser will have factored this possibility into the plan and will work to ensure the business avoids these mistakes.
Understanding the money markets
An experienced financial director will have a good understanding of how the money markets work, what rates are available for business development and how to use his or her knowledge according to the best interests of the expanding business. If money market rates for capital equipment are different from money market rates for working capital, the business owner will need to know this and therefore deal with the implications. Markets can be volatile, so staying informed of the options will help keep a check on finances.
If the business needs to relocate due to its proposed expansion, it’s important that it moves to the right place. For example, just because premises are offered at a low and attractive rate does not mean this is the best option for the business. The premises may be cheap, but consider if the location is easily accessible to customers. How long does it take to access the transport links when deliveries are to be made? Weighing factors such as travel distance to markets, for instance, will help the business decide how to save money and make the business more profitable. Having a careful grip on finances will achieve both.