Most California businesses have humble beginnings. From a lawnmowing service to surfboard manufacturing, small businesses often “bootstrap” by making the most of limited resources. Currently, California is home to more than 4 million small businesses with growth that doesn’t show signs of slowing.
Once a business moves into the black and gains the opportunity to expand for greater success, it’s time to look at financing a sustainable plan. Here we detail the key sources of finance for business expansion as you create your growth plan.
When’s the right time for business expansion?
Taking on debt can feel like a step into the unknown. However, if it’s been a few years since your business started and you’ve experienced positive cash flow, expansion may be a smart move.
A strong financial history is a good indication of future success. But what does that history entail? You might want to take an in-depth look for positive cash flows instead of rising sales figures, experts say.
“People mistakenly assume that revenue growth is the best barometer of a company’s success,” said Bob Hulterstrom, Senior Vice President of Corporate Banking at California Bank & Trust in San Diego. “While revenue growth is certainly good, more important than sales is the resulting cash flow. Management needs a laser focus on increasing cash flow. Coupled with appropriate levels of capitalization, this best enables a business to make the decision about expansion.”
Are you ready?
Taking the time to reflect today can help you gauge your growth potential tomorrow. Whether it’s a new location or offering services, you should make a checklist of needs and issues.
“The time to build a banking relationship is before you need financing,” Hulterstrom says. “Working closely with a banker, CPA and attorney can help you navigate expansion later. The strength comes from them understanding your business.”
Historic growth is the key to justifying expansion. Look at several other factors as a litmus test that can show you’re ready to expand:
“Have a plan that shows long-term results and stay realistic,” he says. “If you’re looking to double business overnight, that’s not likely to happen.”
Choose the right lender by making an informed judgment as to whether the bank fits your business. Ask about experience in your industry and marketplace. Review the bank’s strength, stability and record of keeping bankers on your account.
Making the leap
There are many options to help you scale and move forward:
Making the big decision
Since cashflow is crucial, use a calculator to allocate funds and determine timing and needs. Refer to the cashflow chart to develop your business expansion budget. Use SBA planning tools for mergers and acquisitions and look at resources for veteran and minority-owned businesses.
Once you’ve made a plan, work with your bank to get guidance every step of the way. You can expand intelligently and profitability. Contact a banker today to learn more. [cite::171::cite][cite::172::cite]