The late nights, creativity, and hard work you've poured into your business are finally paying off. But, passing on that big sale or superstar hire because your business doesn't have the capital to see it through could be a big setback.
Fast-growing small-to-midsize businesses (SMBs) often lack access to capital, says Rob Frohwein, CEO of small business online lending platform Kabbage. Nearly two-thirds (63 percent) of SMB owners are regularly stressed because of cash flow concerns, according to a March 2019 Kabbage survey. The majority (91 percent) spend as much as 20 hours per week on cash-flow management issues.
You can manage your SMB's growth without the pain of capital and cash-flow concerns. Doing so requires a strategic approach that includes both pursuing opportunities and avoiding pitfalls.
1. Analyze objectively
Opportunities come in all shapes and sizes-;and some are better than others. When considering that major equipment purchase, new hire, or other investment, evaluate the impact it will have on your brand, earnings trajectory, and organizational structure and what the potential return will be.
Similarly, prioritize business impact over skills when hiring. Finding the best employees for the company is critical, Frohwein says. Hiring solely to get more skills in-house without properly analyzing the short- and long-term impact on the business can hamstring growth.
2. Know your numbers
Another mistake is not knowing your numbers, including your cost of acquisition and customer lifetime value. " Entrepreneurs end up inefficiently spending money to acquire a customer or they'll invest in activities where the gross margin-;the amount of revenue minus the immediate costs associated with that sale-;is actually negative," Frohwein says.
Knowing your average customer acquisition cost and whether or not that cost is profitable for your business allows you to make clear, fast decisions about future investments or business opportunities.
3. Take control of cash flow
As your company grows, install systems and processes to ensure you're managing your cash flow well. "Streamline billing processes so invoices go out immediately instead of lagging, which helps get cash in the door faster," says Michael Eckstein, owner of The Agency Accountant. You may also consider offering a discount for fast payments, or tech solutions that allow you to offer your customers invoice financing. Such options allow your company to get paid upfront while giving customers the option to make payments over time.
4. Evaluate your borrowing options
When your business is growing, you may find new credit opportunities to increase your flow of capital. Before you accept, make sure you understand the return on investment (ROI) each dollar will bring to your business. Small business lending should always be a revenue-generating activity and never a take-it-because-it's-available decision. New online options offer lines of credit so you can take exactly what you need when you need it and have time to assess the ROI to your business.
5. Diversify your funding sources
Capital is the oxygen to companies, whether just starting out or growing quickly. Businesses benefit from peace the mind when they have access to capital when needed. New technologies offer simpler, more flexible funding options.
Small businesses have more opportunity to diversify their funding sources to include their bank, sales revenue, online lenders, and other cash sources. Not all business expenses can be paid the same way. For example, you can't issue payroll on your business credit card. So, multiple funding sources allow you have the peace of mind to select the right source for each expense. Use all of the resources at your disposal to create a capital and cash flow safety net. "You can make a lot of mistakes and see your way through them if you have the cash," Frohwein says.