When opportunity strikes, businesses grow exponentially. However, with high growth comes high risk. A smart business owner is prepared to grab the opportunity, but he/she is vigilant not to take too much risk. During the expansion phase, variables such as targets, projections, and budgets change. It is important to cope with these changes strategically and ensure your business can handle expansion and sustain it for the long term.
To give you an idea of the change, a big order or a sudden change in trend creates demand. Before rushing in to buy equipment, do mass hiring, open multiple stores, and take massive debt to fund this expansion, analyze the opportunity and understand if it is temporary or lasting.
Making long-term investments for a momentary opportunity can lead to a debt spiral. When the demand fades, you will face overcapacity, which will be challenging to maintain. Hence, it is always wise to get a business consultant involved and take some time to map the financial strategies and expand in a structured manner.
Five Financial Strategies for Sustainable Business Growth
Build a Financial Model
As we stated at the start of the article, a smart business owner is ready for the opportunity. To be prepared means having a scalable financial model, which acts as the foundation for informed decision-making. In the model, you incorporate revenue projections, expense forecasts, cash flow management, resource allocation, capital spending, and key performance indicators (KPIs). You also list options for financing and set a route to fund expansion.
The financial model considers opportunities and threats and sets up an action plan for major risks. You can revisit it and change its methods to keep it updated with business challenges and opportunities.
Consider the financial model as your map to navigate through business expansion. You can always refer to it and remind yourself to expand methodically.
Budgeting and Capital Allocation
The most essential part of business expansion is capital allocation. It is easy to spend more, but you have limited financial resources. Hence, every spending decision should be thought through thoroughly, and there are several financial metrics to help you. A business consultant can help you analyze the project cost, forecast revenue and income and project return on investment (ROI). Some projects may generate low returns but are easy to carry out and generate regular work in volumes. Some projects may have high returns on income but have high risk and difficulty levels.
The business consultant can help you analyze the projects using these financial metrics and shortlist the best possible options that maximize your business resources and skills.
Your projections are reasonable only when you stay within budget. Once you decide to proceed with the selected projects, budgeting will come into the picture. The cost estimates will be used to allocate the funding to each department. However, budgeting should be realistic, and revenue and cost projections should be based on historical data with a buffer for contingencies. So even if you go off budget, the cost is within a controlled range.
While your projections need not be 100% accurate, they should be higher because a sudden major expense mid-way through the project can leave you in a financial bind.
Identify Financing Options
Financial strategy is about being prepared for almost anything that can go wrong. While you may want to fund business expansion with business savings and investments, it is better to explore various financing options. You can consider bank loans, government grants, angel investors, private equity investors and more.
You can also establish partnerships with suppliers to provide you with materials and have a share in profits. Having these options handy before you begin a new project or venture can help you avoid making hasty financing decisions.
Diversify Revenue Streams and Manage Risk
While your primary source of revenue is your business operations, try diversifying your revenue streams. You can invest some idle cash in short and long-term securities unaffected by your business and sector risks. This money can be used during difficult times. You could gradually diversify into new products or supplementary services. For instance, an electronics shop owner can offer repair services or sell refurbished products. They can even offer annual maintenance services to generate a stable flow of revenue. If you have vacant office space or heavy machinery, you can rent it to develop a non-operating source of income.
While uncorrelated revenue streams can help you mitigate business risks, you can have insurance for natural calamities and certain business risks. When preparing a risk management plan, list down all the risks, such as market risk, cybersecurity risk, business reputation risk, supply chain risk, regulatory and compliance risk, and operational risk, and look for innovative solutions to reduce the impact or overcome the losses. A business consultant can help you come up with strategies backed by numbers.
There are case studies of companies that have emerged from near bankruptcy and become profitable with strong management and robust implementation.
Know Your Taxes and Plan Accordingly
Expanding your business could expose your business to new types of taxes. For instance, companies generating revenue above $30,000 in a single calendar quarter or over four consecutive calendar quarters have to register with goods and service tax (GST). As your revenue grows, it may be wise to incorporate your business to claim the small business deduction. Several such tax credits and deductions need tax planning. A tax consultant can help you navigate through the taxes and avoid any tax surprises.
Contact Glenn Graydon Wright LLP in Oakville for Financial Strategies and Business Growth
A skilled business advisor can help you grow your business with the right financial strategies. At Glenn Graydon Wright LLP, our tax experts and business consultants can provide financial analysis and strategy to support your business growth. To learn more about how Glenn Graydon Wright LLP can provide you with business advisory services, call today at 905-845-6633 or connect with us online to schedule your initial consultation.