Financial Methods of Growth - Expert Business Advice (2024)

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The best method depends entirely on you and your business. The best way to get there is to get to know the process.

By Marc A. Price

REGARDLESS OF how far your entrepreneurial spirit has taken you, let’s go ahead and assume you’ve already launched your small business with success.In the midst of getting from start-up phase to a smooth running machine, there were most likely several goals or milestones that you set forth as a road map for reaching consistent stability.You may have sought advice from experts and mentors.You may have also gotten educated and up-to-speed by gaining industry experience, through researching the internet, reading by trade publications or even attending seminars.You probably invested sweat equity, money and other personal resources along the way too.In the end, it was all worth it; as you got your small business off the ground.

• Create an Identity:Build a brand, create a market position, offer unique selling points, let others know how you stack up to the competition
• Create Some Relationships:Establish a solid client-base, stay in touch with repeat customers, ask for referrals, establish strong connections with your banker, accountant, legal representation
• Create a Presence in the Community:Volunteer, do charity work, join various associations, donate to worthy causes, be a positive activist for your community in which you are associated
• Create Some History:Establish a track record of solid sales and happy customers, deliver solid results to investors, keep your banker and accountants happy with month-after-month showings of solid returns and up-to-date documentation on everything

No doubt, there will come a time when you want to grow. These basics are a solid cornerstone for preparing that impending growth.They should never be ignored or taken for granted.Combining all of these external efforts with your internal organized documentation and records (such as business, marketing and strategic plans, official corporate and legal documentation, tax filings, banking records, etc.), there will come a time when decisions will need to be made regarding the specific methods, strategies and modes you will choose to get you to the next level with your business.

Method, Strategies and Modes of Growth

Methods:The financial method(s) or approach you decide upon may end up being the most significant decision you make for the long-term future of your small business.Let’s examine both methods.

• Debt Financing represents a loan (or series of loans) that must be repaid over time, almost always with interest.If qualified, a small business can borrow money either short term (less than one year) or long term (more than one year) arrangements.Banks, Finance companies and even some government agencies around the world are usually the main suppliers of debt financing.There’s usually a tax advantage component attached to debt financing, due to the interest paid on loan being tax deductible in most scenarios.This financing method also restricts future obligations to the original lender, because the lender is not obtaining an ownership stake in the business being finance.

However, debt financing also has its disadvantages. The downside to this option is that the small business may at times struggle in making consistent payments on the loan due to unexpected and sporadic cash flow due to a combination of uncontrollable factors.This must be taken into consideration when selecting this option.

• Equity financing is not a bank loan, but rather a capital infusion obtained from interested investors in exchange for an ownership stake in the small business.This type of financing is provided by angel investors, venture capitalists or private equity firms.Because this option is not a loan, the distinct advantage to equity financing is that the business is not under obligation to repay the money invested.As an alternative to this arrangement, the investors’ financial goal is to reclaim their capital infusion out of future profits.

Strategies:Alternative growth strategies are also vital in the overall financial methods of growth process; although these types of growth are more in tune to different ways you can expand the visibility and outreach of your products and services.All of these different strategies should have a financial growth component within each particular strategy as well.Here are a few traditional strategies to start the process:

• Diversification:Think of adding new and/or alternative products and services to the ones you already offer.This is huge with a solid and long-standing client-base.This adds new income streams to the successful ones; and many times these products and services can be successfully bundled.
• Head to the Internet:Even if you already have a website, it’s vital for professionals to perform a comprehensive review of what your site looks like, how it functions, and what it could do for you if some tweaking were to be administered.Plus, is your small business able to offer any of your products or services on an e-commerce platform?More and more consumers are heading online to make purchases large and small.And if selling your wares online is not a possibility, ensure that your branding, marketing and messaging are singing in unison to deliver a knockout punch to potential clients.Mobile applications are yet another way to expand this option outside the traditional brick-and-mortar selling platform.
• Open a New Location: This can be expensive and risky; however if financing is in place and you’ve done your homework, go for it.Additional locations can add to the visibility and outreach in your market and create a more convenient way for your customers to get to you.This option has to make sense in every sense of the word, however.
• Expand to a New Market: Do your products or services thrive in the market in which you operate? If so, would it experience equal success in a contiguous market?These questions must be entertained if growth is an option your company has decided upon.Again, the proper homework will dictate which market(s) will be best suited for this option.
• Franchising / Licensing / Private Labeling:All of these options can be viable alternatives for expanding your company footprint.Franchising your entire business to other markets and locations, licensing specific products and/or services to others, and private labeling your popular offerings could yield huge results.Some businesses have done all of them; some choose one particular route to take with these strategies.Not every small business can pull these options off; but they should be heavily investigated as a way to get “other parties” to move your products and services for you.
• Offer Commissions to Outside Sources:If applicable (and legally accepted in certain industries), every small business should investigate the prospect providing financial reciprocation to outside sources for selling/re-selling your products and services or for referring clients on behalf of your business.As always, an ethical review should accompany this strategy to ensure proper business practices are followed.But, if everything seems to be satisfactory, having others work and refer on your behalf can be a boost to your bottom line.

Modes:Finally, reaching a conclusion on the environment of financial growth may present itself to you at some juncture in your business’s evolution.There are two clear environments that your small business could select as the best alternative to expanding.They are:

• External Growth involves more significant financial resources in most cases and can also require years of research and investment of time.Mergers and takeovers are two ways methods of financial growth for businesses to become a larger organization.A merger is described the combining of two or more companies, usually with the approvalof both (or all) companies involved along with any affiliated shareholders and/or directors.

A takeover (also known as an acquisition) is a corporate action where an acquiring company makes a bid for another company.Depending on the board of directors and/or shareholders agreeing upon the terms of the agreement dictates if the takeover is “friendly” or “hostile” in nature.

• Internal Growth speaks to the concept of businesses escalating its size and capacity through the course of investing in its own existing collection of products and services or by developing new ones.This process is also referred to as organic growth.Oftentimes, this can be is a time-consuming course of action; however, it is widely viewed as an option carrying less risk than external growth alternatives.

A key point in the development and progression of your business will be investigating the numerous financial methods of growth opportunities available to the small business owner. Using these segregated topics of consideration should help you at arriving at the right decisions to make for the future your organization as well.Always remember that doing your homework will eliminate some options and elevate others to the forefront of discussion.Making timetables flexible in making these decisions will assist in proper decision-making too.Don’t be afraid to bring in other entrepreneurs, experts and even consultants into the mix to validate (or refute) your research along the way.

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Aside from Director of Operations, Marc is an expert in organizational management & small business development and is a regular contributor to ExpertBusinessAdvice.com