Most California businesses have humble beginnings. From a lawnmowing service to surfboard manufacturing, small businesses often “bootstrap” by making the most of limited resources. Currently, California is home to more than four million small businesses with growth that doesn’t show signs of slowing.
Once a business moves into the black and gains the opportunity to expand for greater success, it’s time to look at financing a sustainable plan. Here we detail the key sources of finance for business expansion as you create your growth plan.
WHEN’S THE RIGHT TIME FOR BUSINESS EXPANSION?
Taking on debt can feel like a step into the unknown. However, if it’s been a few years since your business started and you’ve experienced positive cash flow, expansion may be a smart move.
A strong financial history is a good indication of future success. But what does that history entail? You might want to take an in-depth look for positive cash flows instead of rising sales figures, experts say.
“Business owners and entrepreneurs sometimes mistakenly assume that revenue growth is the best barometer of a company’s success,” said Wayne Ward, Senior Vice President and Regional Manager at California Bank & Trust in Los Angeles. “While revenue growth is certainly a good measurement, more important than sales is the resulting cash flow. Management should be laser focused on increasing cash flow. Coupled with creating and maintaining appropriate levels of capitalization, this best enables a business to make the decision about expansion.”
ARE YOU READY?
Taking the time to reflect today can help you gauge your growth potential tomorrow. Whether it’s a new location or offering more services, you should make a checklist of needs and issues.
From there, your bank can help with lines of credit and SBA loans. But the right bank will help you look at resources, not just products.
“The time to build a banking relationship is before you need financing,” Ward said. “Building a long-term relationship with your banker is as important as building a long-term relationship with your CPA and attorney. The bank can help you navigate expansion later when you really need to. The strength comes from your banker understanding your business.”
Historic growth is the key to justifying expansion. Look at several other factors as a litmus test that can show you’re ready to expand:
• Ensure that you have established a high degree of quality management and expertise, along with a stable leadership team and a succession plan.
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