Judging Expansion Opportunities using Financing for Working Capital
The first step to any business expansion plan is to consider how much growth a business can reasonably sustain. Businesses do not simply expand without help. It takes considerable planning and consideration to get a business to expand in the proper direction and within the correct limits. Uncontrolled expansion often results in failure when the market equalizes. The wise business owner understands how to capitalize on the time of expansion by financing working capital increases, without increasing their debt ceiling to unsustainable levels. While many individuals look at debt as the enemy, businesses use debt as a way to grow. Even when a business has a large amount of working capital, they often need additional financing for working capital to fund large expansion projects.
Opening a new location for example, can require considerably more working capital than most businesses have access to. Opening the additional store will eventually realize increased profits for the business owner, but the original outlay is tremendous. Few businesses have enough in cash to fund that type of financial outlay, thus they look to financing working capital to improve their spending outlook. However, before they finalize financing for working capital, it is important to know not just how much they need, but how much they can comfortably pay back. A business should look at their sales receipts for at least the past three years, and more reliably the last five, to determine their overall financial health. While a single location may be doing very well, it is important to consider the consequence if a second location does not perform as well after financing the working capital for the expansion. The question to ask is can the original business pay for the entire loan regardless of the success of the expansion? If the answer is a resounding yes, then get started with your plans today.
If you are not as certain that the single location can bear the full expansion cost for the duration of the loan, then it is important to be absolutely sure along each step in the planning process. Expansion is the key to increasing profits, and when a business fails to expand they often wind up stagnating and eventually shutting down. If your customer base is not constantly expanding, then it is in the process of shrinking. Repeat customers gradually find other places to shop, move away, or find other interests. As they do this, you need a continual supply of new people simply to break even.
Financing working capital allows businesses to obtain the funds they need to expand as they are able. It takes considerable dedication to manage multiple locations successfully, along with a dedicated team of employees. All of this takes money to finance it as well. Financing working capital allows your company to expand to its reasonable limits without putting it at too great a risk. Many loan options run for as many as 25 years at a fixed rate of interest to allow your business to expand to its full potential.