Growing a business from a start-up to SME requires more than just hard work, it requires the right finances. Here’s what you need to know to grow your business today.
To grow, you need capital. Without it, it is almost impossible to fund the new employees, locations and products that you need to expand your business. Unless your business is incredibly profitable, the capital you need to grow and expand will likely come from outside your company. This finance can come in two main forms: debt financing and equity financing.
Debt Financing A good example of debt financing is a traditional bank loan. Your business receives finance and in return has to make scheduled payments. This type of financing involves cash flowing back out of your business at set times, regardless of the performance of your business during that period. Failing to keep up with these payments can have serious consequences for your business, so before undertaking debt financing you must plan your future finances carefully to ensure your plans are feasible.
Equity Financing Equity financing involves giving away some form of equity in the business in exchange for investment. For example, a business angel may provide funds for growth in return for 25% equity in the business. Think Dragon’s Den. This type of financing involves bringing a new person, with their own interests and personality, into an important role in their business. Depending on the agreement the investor may want significant management input into the business. Businesses considering this type of investment must choose their investor carefully, and make sure they fully understand the implications before committing.
Discover the finance fundamentals you need to know to help make your business a great business with our one-day financial literacy training workshop Colour Accounting™.