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.
1. Seasonal gap
Many retailers and manufacturers have a lot of different sales depending on the season. The return items reached the peak in August and September; Swimsuit peaked in spring.
Although these sales revenue will be charged in the peak season, the cost of purchasing or manufacturing these goods may have been incurred earlier, and most likely in the low and off-season revenue flow. In addition, most businesses' fixed costs do not change by season (e.g. rent, wages, it), which only increases the potential size of cash flow gaps in low-income months.
Before you build up a substantial cash reserve or have figured out how to increase or generate revenue in the off-season, your business may need temporary financing to spend one or more negative profit and cash flow pressures.
【Source text: by report】
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