Debt or Equity Finance?

Funding Your Business For Growth

Is your business starting to grow at a rapid pace and going into overdrive? Once the business experiences extreme growth, one problem that arises is cash flow or alternatively, the question of how to finance the growth. The business owner needs to look at getting capital through investment or using debt through a financial institution. This is how a business owner will finance their growth. Both debt and equity finance requires a solid business plan and a good adviser. This should include a strategy for the finance and also how the business will look 1 year down the track and 5 years down the track. Lets explore 2 options for funding business growth.

Finance Growth through Debt

A financial institution will want to see how the business will look in the next 3 to 5 years in terms of a budgeted profit and loss and a cash flow projection. A major mistake business owners make is to go to a financial institution without all of the correct paperwork in place. The owner needs to take the initiative and set the meeting with the accountant and bank manager at the same time. This will ultimately save money as the owner will be able to command the best rates with the institution they choose.

Equity Finance

A good option for a business going into exponential growth is to look to bring in equity partners. These are the type of people who could be leaders in the industry or have been done all this before. They can introduce the business to the right connections and also advise on the problems that may arise from a current strategy. This can really take the business to the next level. To get interest from these types of investors, the business owner needs to have a comprehensive business plan in place. They need to see what the future holds and how the owner expects to get there.

Both options above should have the business owner sitting down with their accountant or adviser to create a comprehensive business plan. Remember the old saying “If not now, then when? If not you, then who?”.

Contact us if you would like any further help with this.

Tradies Accountant