A big reason companies like United Capital Source exist is the endless ways growth initiatives can go wrong. Without the guidance of a business financing expert, small businesses can easily underestimate costs, misinterpret data, overlook significant variables, or overestimate their capacity to solve complex operational problems on top of their day-to-day routine. Many young companies have made the timeless mistake of growing too fast only to realize they did not have the means to sustain themselves. But with every failure comes a lesson. Thanks to the misfortune of these companies, their peers now know exactly how to avoid the same fate.
In most cases, preventing premature growth is as simple as accepting that there are more requirements for moving forward than originally anticipated. Here are three things to look out before growing your small business:
1. Interest And Data Are Not The Same
It’s only natural to get excited when more people show interest in your business. Your social media accounts are blowing up, demand is through the roof, customers are asking for new products and services, and you might finally sit down with potential business partners. At first, these seem like perfectly understandable and logical reasons to invest in growth. Hiring more people, expanding your physical space, and buying more equipment would allow you to serve those customers. But interest and data are two very different things.
As crazy as it sounds, it’s possible for a company to experience a massive surge in demand but not generate enough revenue to substantiate its growth-related investments. Doubling your staff or securing a 3,000 square-foot manufacturing facility is only justifiable when you have hard evidence to prove just how well your company is doing and is expected to do in the near future. All the interest in the world means nothing if cash flow, revenue and profits aren’t equally promising.
Sometimes, a company will mistake a temporary surge in demand for a permanent change. They will forget that seasonality, passing trends, or external events can bring in new customers just as effectively as high quality work. Small businesses should therefore be patient and see if a surge in demand is temporary or permanent.
2. Debt Is Already Piling Up
Debt is a complicated subject. There are numerous advantages to maintaining a healthy amount of debt, but too much can ruin profit margins. Young companies are typically in debt from the get-go and therefore run the risk of getting too comfortable with owing money. You can’t blame them, since they could spend two or three years in debt while generating consistent revenue. But companies with growth on the horizon cannot be so limited by their debt that they cannot fulfill their obligations to their customers and/or business partners.
Keeping an eye on profits is crucial for anyone who is considering applying for small business loans. Some business lenders might award convenient terms to borrowers with fluctuating revenue because their profits are on the rise. It’s also very difficult to grow without steady profits, which is why companies like United Capital Source offer several types of small business loans geared towards removing the obstacles that are whittling away at profits.
Accounts receivable factoring, for example, helps borrowers speed up their business cycles, or the time between making a sale and being paid in full. When a company has to wait three months to get paid but has 30-day accounts payable pressures, profits get lower and lower. But with accounts receivable factoring, small businesses can plow money into their accounts on a consistent schedule. Other small business loans can increase profits by quickly increasing your credit score and giving you the power to ask business partners for credit extensions.
3. You Aren’t 100% Sure You Can Do It
Companies like United Capital Source aim to make small business loans more accessible, largely because knowing how to pay off debt while running a successful business is such an essential skill for growth. But rather than making potential borrowers fill out mountains of paperwork just to learn this skill, we require just a short list of financial documents and a waiting period of 24-48 hours. We don’t believe you need to have a flawless credit score, assets that can be used as collateral, or a high net worth to become a better business owner. You and your business will evolve without the price of nearing bankruptcy or losing your sanity.
Your first small business loan with UCS might not be the loan of your dreams but it will likely qualify you for a second round of funding with increasingly convenient terms and a higher borrowing amount. And since we already know you are capable of paying off debt without trouble, you could very well get that second round of funding even quicker than the first. Practice makes perfect, and if you work with UCS, that’s exactly what your finances will be by the time you are truly ready to expand into new territory.