As we all know, cash flow is incredibly important for all businesses, without a positive cash flow companies are very often forced to cease trading.
The early years of a company are critical, many companies aren’t concerned with growing the business and just want to keep it afloat in these early stages. With a bit of extra finance it can smooth the progress from start-up to a steadily growing company.
When starting out business owners have a few options when it comes to raising finance, they can go through formal routes such as banks or finding investors, or they can raise money through personal finance using short terms products like a logbook loan or credit cards.
Another option for raising finance is to ask family or friends for loans. This isn’t always a solution as not everyone has family and friends who have money and if the worst comes to the worst and the loan can’t be paid back it’s often more problematic not being able to pay back a friend or family member.
Once funds are secured it is vital to invest in the right aspects of your business that will yield results for both the short and the long term. If a company is founded by technical people who are great at building the product but don’t have good sales skills, then the obvious area of the business to invest in would be sales and marketing.
Business owners who often succeed are those who invest in building a team of people around them that are specialists in different areas. They realise that growing a business can’t be done by one person or the original team and sometimes new skills need to be added to the mix in order to stop the business stagnating.
Raise enough money
Companies that succeed when they bring in new finance do so in many cases because they raised enough capital to succeed. Going to a bank or investor and asking for money is not easy and can be a rigorous process. If a company doesn’t ask for enough money to realistically grow and be successful there isn’t much point in asking for any finance at all and it will just create financial problems in the future.
In many cases a bank or investor will notice that not enough money is being asked for and it will make them less likely to lend.
Think long term
It’s often tempting to go for quick wins and invest new finance in strategies that will bring in profit fast. Whilst this can be very useful, there also needs to be a balance between short term success and long term growth. It is true that some investors and shareholders will want to see profits quickly but any sensible investor will know that long term profitability should be the ultimate goal. Of course this depends on the business model and the proposal put forward when pitching for finance.
Businesses that have external investors will nearly always have an exit plan for selling the company so the investors make a strong return on their investment. Companies that don’t have external investors might not have an exit plan which can be good for the business because it allows it to think very long term and create the best possible business.
It’s clear that injecting finance into a company that is just starting or needs to grow is often a very good thing. However it is important that the money is invested in the right way in order to achieve success.