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How to finance small to medium business growth

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Inflation is biting and interest rates are rising — but that’s no reason for a business to stand still.

Growth is the aim of a good and profitable business. Moving from small to medium and medium to enterprise isn’t as lofty a goal as one might think. You can use finance to fuel your business growth and take it to the next level. Here are some ways to spur your growth using available finance.

Set up business accounting and bookkeeping

If you’re a small business and doing your accounting on spreadsheets or – even worse – in books and ledgers, you will need to use what the big companies use to get on an even playing field. You should have business bank accounts, professional accounting software (preferably cloud accounting software), and have regular reporting on accounts receivable and payable. This keeps track of your business' lifeblood and cash flow. For more help, visit business.gov.au.

Establishing your plan

What's your company's growth plan? Specific, Measurable, Achievable, and Time-Limited (SMART) plans are needed. Create a vision statement like “15 per cent more market share in two years”.

Next, create a strategy and tactics. Do you need more space? Manufacturing capability? Staffing? Vertical integration?  Remember: investing short-term liabilities in long-term assets is risky. The asset's funding must meet the liability's timeframe – for example, a five-year car loan – as this can cause cash flow to dry up and your business to possibly shrink — or fail.

Look at business loans

Once you have a plan, it’s incumbent on you and your partners to investigate available interest rates on business loans and see where they can be applied to invest in your growth strategy. Are you buying more space? Upgrading your manufacturing infrastructure? Buying inventory? Spending money on research and development?

This will determine the size of the loan, the loan term and your projected return on investment. Some loans may need security (collateral) while unsecured business loans may be approved within a day or two, allowing your business to seize clear and present opportunities that pop up. Remember: the aim is to keep cash flowing and trending upward.

Alternative financing options

To help growth along, a business can turn to alternative finance options. The most common types of business finance outside of loans are lines of credit and invoice factoring.

Businesses can use a line of credit as needed instead of taking out a loan for a set amount. A lender will provide your business credit instead of cash. You only pay interest on the amount you use. This can help with cash flow hiccups or seasonal slowdowns and help keep your growth plans on track.

Invoice factoring or invoice financing helps preserve cash flow by borrowing against outstanding invoices. This preserves operating capital. Low-risk lenders perceive it as a cheap way to acquire early sales value. The invoice itself secures the loan, so you don't require collateral. Don’t become too dependent on invoice factoring, though — it could cause sudden cash flow bottlenecks.

Remember to ask your accountant or financial controller for advice before taking out business credit first.

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How to finance small to medium business growth

Inflation is biting and interest rates are rising — but that’s no reason for a ...  
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