Each stage has significant financial implications, making it important to carefully consider the next step for your business plan.
Knowing what direction to take begins with asking yourself the right questions and reflect on your answers. They can help you determine where your business is today and where you may want to take it tomorrow.
You can strengthen your business by opening new locations, increasing capacity or prospecting for new customers.
“If you want to grow, the first thing you should ask yourself is: Why?”, says Kenan Aksoz, founder and principal advisor of Business Owner Advisory Services at U.S. Bank.
You will want to be clear about your reasons since they’ll influence how you plan and invest in growth. Ask yourself the following:
Growth comes in many forms, from opening a new location to expanding your workforce to increasing output, and each form requires different degrees of investment. Defining the reasons behind your desired growth should be your first step before raising funds.
The type of growth needed will dictate your potential funding source options. If bank financing isn’t an option, you’ll need to use your own internal funding or raise external money through an equity offering, debt offering or other type of non-bank financing. Financing may come with strings that can potentially hinder growth instead of help it, notes Aksoz, so plan carefully.
The speed at which you want to grow also has financial implications. While growing slowly may require smaller investments over a longer period of time, growing quickly often requires a large investment in a short period of time.
Even if you can secure the capital to fund growth, that doesn’t necessarily mean it’s a good time to do so. “You might be tempted to take advantage of the availability of capital right now, but just because things are good now doesn’t mean they’ll be good forever,” Aksoz says. Before you take on debt to grow, be sure to project what the economic and business environment for your company will look like in the short and long term.
If the market for your products and services is changing, now might be the right time to expand your business with new offerings.
Of course, reimagining your company and expanding your business often requires rearranging your finances.
Consider these questions around expanding your business:
Expansion typically requires an upfront investment in the form of research and development, or R&D. Depending on your business, that might include everything from product development to market research.
“A bank typically isn’t going to finance R&D, but you can certainly seek investment through a debt or equity offering to make that happen if you need to,” Aksoz says. “There are pros and cons, but if it’s the only way to keep you competitive, it might be worth it.”
Delivering new products and services requires new knowledge and skills, as well as new employees who possess them. This might cost a premium if the needed skills are in high demand but short supply.
In addition to human resources, new products and services might call for extra equipment, training, vendors, real estate and working capital.
If the time is right for growing or expanding, it might also be a good time to think about selling. Along with practical considerations, there are also several financial questions you should ask yourself:
You can’t time business valuations any more than you can time the stock market. Instead of planning when you should sell, look at the market and decide whether the current conditions are right for selling. “The best time to sell might be when things are going great, because that’s when you’re going to get the most money out of the business,” Aksoz explains.
Both internal and external factors can influence your company’s sale price. Although you can’t control the latter, you can maximize your valuation by controlling the former. Aksoz says, “Look at your business model and your leadership — can you make changes or add expertise that might make your business more attractive to buyers?”
If changes are needed to make your business more attractive for buyers, a partial sale might be the answer. “You could still keep 10, 20, 30 or 40 percent ownership but bring on a partner or another company whose resources you could use to take your company to the next level,” Aksoz suggests.
“There are a lot of strategic decisions that need to be made, and they’re not easy. Every single business and every single business owner has different goals,” Aksoz says. “You need to have a well-thought-out plan and surround yourself with experts who can help provide clarity around your options.”
Whatever’s next for your business — a larger footprint, a more diverse portfolio of products and services, or new ownership — consider working with a financial advisor before you make your next move.