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How to manage a company’s finances during a growth spurt

Growth is an exciting stage for a business. Whether it’s by design or is happening in response to demand, a growth spurt can be a financial game changer. Not all plans for growth are equal and sometimes they backfire, taking a business down a path of financial instability.

As your business grows, it’s critical to consider how to manage finances to make expansion — a new product/service line, distribution channel or a new location — a positive step for your business.

Courtesy photo

Francine Cram

Develop a strategic growth plan

Similar to a business plan, a strategic growth plan is a process of developing a written document that identifies:

  • Where your business stands today
  • Where you want to be in the future (in a year? five years?)
  • Where a growth strategy will take your business
  • How growth will impact your business financially
  • Internal and operational decisions and changes necessary for growth
  • External relationships that will be key to growth
  • Challenges or threats to realizing your vision

Consult with your business banker

With a vision for growth and possibly a draft of your strategic growth plan and financial projections in hand, consult with your business banker. If you don’t have an existing relationship, ask other trusted advisors, such as your lawyer or accountant, for a referral.

Seek out financing options to fuel your growth

When you’re forecasting expansion, take time for an in-depth review of your business finances with your banker. Businesses often assume they need a new, or larger, line of credit to fund their growth plans. Whatever financial strategy and tools you pursue should be highly customized to your unique needs. For example, businesses that are experiencing dramatic and rapid growth might need a lot of cash outlay for a new location, significant investments in new equipment, increased inventory or funding for larger accounts receivables.

Talk with your banker about funding options, such as:

  • Bank financing products, including term loans, credit lines, accounts receivable and inventory financing, equipment loans or commercial real estate loans/mortgages
  • Grant programs specific to your industry or current need
  • Alternative lending sources such as the Finance Authority of Maine, Economic Development Organizations, secondary lenders, etc.
  • Personal resources: Are your own resources or liquidity, or the resources of family and friends, a potential source of financing?
  • Investors to secure capital funding: If your growth is so large it can’t be funded by a bank, could a capital injection come from an investor?

Be prepared for a change in your financial situation

Determining the costs required to scale up is vitally important, as is having a clear understanding of how this growth will affect your cash flow position. Businesses are sometimes surprised at the length of time it can take to gear up for growth and that they might actually end up in a negative cash flow situation during this phase. Costs such as payroll, moving expenses inventory, large or extended receivables, can creep into the process.

Like launching a business, scaling up requires vision, research, planning and the support of your trusted banking partner to make managing the financial side of growth a productive endeavor.

Francine Cram is a senior vice president and senior business banking relationship manager with Machias Savings Bank. She can be reached at [email protected].