Don't start 'til you have the money
The Ryugyong Hotel in North Korea is perpetually unfinished, because it ran out of money. By Martin Cígler, CC BY-SA 3.0
Failures to plan adequately--especially regarding securing necessary finances--shows up regularly in big government mistakes such as the county's ill-advised hospital purchases. Portman Finance Group unpacks how smart executives secure adequate revenue before they launch new, expensive expansion projects.
This article will therefore highlight how a lack of external business capital can disparagingly stunt your business growth, hindering your ability to:
Expand your premises
Deal with unforeseen expenses
Invest in your service and promote your business
Investment in new technology and equipment
By highlighting these challenges, we aim to spotlight the crucial role external finance plays in business success- helping businesses understand the financial opportunities available to them and ultimately utilise business funding effectively for their own business growth.
Why do businesses need finance?
Having adequate funds in place to survive and grow is crucial for any business. Customer demands are constantly evolving and the competitive landscape requires businesses to meet these new challenges head on by investing in innovation to boost productivity. Without the proper funds to adapt to the changing environment, a business “will be held back and eventually struggle to survive”. In fact, Manx Financial Group discovered almost 1/3 (31%) of SMEs say they have had to stop or pause an area of their business due to a lack of finance, particularly among small businesses in agriculture (63%), media (60%) and manufacturing (59%) and sectors.
A business’s ability to invest is directly affected by the amount of finance it has available. For businesses whose source of revenue comes solely from one source, growth is considerably more restricted. A lack of income, perhaps due to seasonal fluctuations or an adverse effect of working within budget constraints, can mean there is not enough cash in bank to e.g. hire new employees for an expansion, or update crucial equipment to stay in line with competitors, preventing many from achieving their growth potential.
This is where external business funding such as business loans or asset finance would come in. If an investment allows your business to capture an opportunity, boost revenue or unlock potential, then finance is worth considering.
Jo Morris, Head of Insight at Novuna Business Finance has stated “the ability to acquire new machinery or upgrade technology- importantly at the time it is needed- is vital to any small business’s growth and profitability. [A lack of finance will] stifle the future of an individual business”.
But how?
1. Inability to expand your premises
As customer demand grows, a business will often scale up or even franchise out by purchasing a larger space. Alongside the funds to acquire or rent and refit a new building, this often requires growing your pool of skilled employees to manage increased demand, as well as acquiring more stock. However, without access to finance, you will be required to fund all of this out of pocket. If you don’t have adequate cash or a contingency fund, business expansion can become very tricky.
2. Difficulty dealing with unforeseen expenses
Today’s business environment is tumultuous and without external finance it may be a struggle to even keep on top of your cash flow. Many SMEs experience seasonal peaks and troughs, dips in sales due to economic uncertainty or supply chain issues that hit revenue. Unforeseen circumstances and expenses have the potential to cause a big impact. Without the security of a contingency fund, you risk depleting personal cash reserves to invest in your business, potentially increasing your stress and making it harder to pay suppliers and other bills.
3. Invest in your service and promote your business
In a competitive market, investing in your business is essential for the success and growth of any business or product.
Today’s digital landscape is ever changing, so businesses should ensure they are leveraging the latest high quality marketing tools such as social media, search engine optimisation (SEO), paid search to increase visibility, attract new customers and drive conversions. However, online presence is just one part of a business’s investment.
It’s equally important to invest in skilled staff, training and development, quality stock, exceptional customer experience, and reliable services. Refurbishing your premises, expanding your offerings through diversification are also key to staying ahead.
While these investments can be costly, external business funding can help cover these essential expenses- supporting your long-term goals without putting a strain on your cash flow or limiting your ability to handle practical day-to-day operations.
4. Inability to invest in new technology and equipment
To maintain industry competitiveness, it’s imperative businesses keep up with the latest technology and equipment to streamline operations, increase productivity and drive success.
However, this upgrade often requires capital. Not taking advantage of the changing and competitive economy due to insufficient funds can also cause your business’s growth to stagnate, as well as result in significantly reduced profit margin. A new fleet of vans, a finishing line, a CND machine, a catering kitchen, or a complete refurbishment. All expensive with the potential to drain the bank account, but all have the potential to unlock revenue opportunities and are perfectly financeable.
Read the whole thing here.
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