Expanding a new business is a journey that hopes to take you through some exciting milestones: your first sales, your first paid employee, your first physical location. As your business grows, you may find yourself planning ambitious plans to expand your inventory, launch new product lines, and even take on a new geographic market or customer base. These are all victories worth savoring.
However, growth is accompanied by costs, which tend to generate faster than cash inflows from new income flows. There is also a potential for misalignment of revenue and cost of the business itself. This gap can be made up by the initial capital of the enterprise, but if not, you need new financing.
The difference between a plan and a successful expansion to the next level of profitability - or growth into an unexpected bankrupt.
Situations requiring financing
All businesses are unique, but fortunately, the most common reason for financing can be attributed to three scenarios.
3. challenges of growth and evolution
Although growth is certainly a basic goal, rapid growth will create its own cash flow and financing challenges. As with seasonal peaks, growing demand forces immediate increases in material, transport costs, and production labor costs, while sales and cash generated may lag behind 30, 60, or 90 days later.
The growth in demand will also force you to spend a lot on new capabilities (for example, your first customer support staff) far ahead of the revenue they are going to achieve.
At the same time, your customers will not change their high expectations for you, so if you don't want your company's long-term reputation to be affected, you need to keep meeting them as you go forward. Similarly, major projects that are considered critical to the long-term development of the company - a new product line, or opening a new office, or entering a new market - often bring huge costs, including one-time and recurring.
Since such projects are often not allocated from monthly profits, new capital is often the key to its start-up.
Look at how a real estate company is funding a move to a larger location. Read the case study.
It's important to lead the actual demand
In business, few things are worse (or likely unsuccessful) than having to compete for money in a short period of time. So it's the wisest way to plan before you expect to. We recommend the following measures.
For all this reasons, is really important to understand the seasonality of your industry, establish a risk buffer and find a financial partner and source of funding.
【Source text: by report】
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