An entrepreneur’s job never stops.
If you’re a small business owner, you may have already spent significant effort and investment planning your business and launching your business. By this point, you’re probably dedicating most of your days to a to-do list that seems never-ending.
As the weeks and months stretch onward, it’s easy to become increasingly occupied with the busy work of running your small business. You can get buried in the day-to-day demands on your time and energy.
This is a critical point at which to reexamine your perspective and goals. It’s the exact moment where many entrepreneurs lose touch with their most mission-critical, long-term needs.
29% of businesses fail — not because they have a faulty product or service — but because they run out of cash.
But this doesn’t have to be your story.
While you may have bootstrapped the launch of your business — and we applaud your grit for doing so — now may be the time to call in some extra help to grow your business.
Understanding when your business is ready to grow
Successfully launching your business is a milestone achievement. But you need to keep in mind a successful launch doesn’t always translate to long-term success. 20% of small businesses fail in their first year, in fact.
Instead of becoming a statistic, there are steps you can take to grow your business.
It’s all about making the right decisions at the right times, in the right directions, and with the right partners and resources to back you up. To figure out when’s the right time to grow your business, first you need to understand your scope of opportunities.
Write down all the business challenges you need to solve, and the opportunities you’d like to pursue some day (no matter the timeline or manpower required). Then go through a brainstorm, and jot down all the possible solutions you can think of to see these ideas through.
These scenarios you just came up with represent the opportunities you have to grow your business. And by your estimations, the solutions you want may cost more money than you have on hand right now.
This is where funding comes in.
While funding isn’t right for every small business, it may be right for you.
Assessing your current finances
If you want to explore options to fund your business, first you need to make sure you’re eligible.
You’ll need to be managing your cash flow effectively. It increases your odds to get the outside funding you need — with the best terms possible — if you do.
Set aside time with your accountant to analyze your business cash flow from day one. You can follow these steps to guide the effort:
- Review your sales, accounts receivable, and all other income: Understand your month-by-month, quarter-by-quarter, and year-over-year income.
- Review your expenses and accounts payable: Get a clear picture of your month-by-month, quarter-by-quarter, and year-over-year expenses.
- Calculate your net cash: Subtract your total cash outflow from your total cash inflow to get your net cash.
Once you’ve surfaced this data, examine it for patterns that will help you tell your business’ financial story.
- Are there lean times where less income is coming in, or busy periods where more income is coming in? Why?
- How does one slow month impact your annual net cash? What safeguards do you have in place to manage unexpected shortfalls?
- How much of your income is stuck in Accounts Receivable? What’s your plan to collect it?
You’ll need to have the answers to these questions handy when working with funding sources, such as banks, equity partners, or venture capitalists. They’ll need it to complete their due diligence before making a decision.
Prioritizing your opportunities
With a stronger sense of your cash flow, you can start evaluating your ideas to grow your business.
Your reasons for growth should be purposeful. You’ll need to focus on the ideas most likely to generate more net cash for your business in the future.
To figure out which opportunities have the greatest potential for profitability, go back to those ideas you wrote down about how to solve the greatest challenges to your business, and dig deeper into what they’d look like in practice.
- Create cost estimates: Now’s not the time for assumptions. Create best-guess estimates to implement each idea. Include hard costs, human resources, and your time, and any other resources that you’d have to spend.
- Develop income and profit projections: Develop revenue projections by creating a pricing scheme and estimating sales. Using your research into expenses, project the income and calculate the profitability of each idea.
After completing this effort, your next steps for growing your business should be clear. Some ideas will have stronger potential business cases and profitability than others.
Your best ideas may need a new source of funding. But your current cash flow shouldn’t hold you back.
Seeking small business funding
As an early-stage business, the two main ways to get funding are through a traditional bank loan or an equity investment.
A traditional bank loan provides funds in exchange for interest paid over a set period of time, otherwise known as debt financing.
To get a bank loan, you’ll need to submit an application with information about your financial history. You’ll be accepted or rejected based on your credit score, how healthy your cash flow is, available collateral, and other criteria based on your ability to repay the loan.
In exchange for a bank loan, you keep ownership over your business, but will have to repay interest on top of the loan principal (or the base amount of funds lent by the bank). You’ll need to be sure there’d be ample room within your cash flow to make a monthly debt payment if you take this approach.
An equity investment offers cash for your business in exchange for part ownership in the company, otherwise known as equity financing.
To seek equity funding, you’ll need to connect with a venture capitalist group, share an initial pitch, and if invited, present an in-depth presentation deck about your business idea.
Equity investments can be helpful because you don’t have to pay back the funds to investors. But in exchange, you give up a percentage of your business ownership, including a future share of the profits and decision-making power.
Locating funding partners
Smart entrepreneurs recognize keeping their promises to customers over time requires a new round of planning, development, and funding to evolve their business strategy.
Funding can get your business access to the cash you need to deliver on these promises. Your decision to pursue funding is an important factor in the long-term success of your business.
It’s also just as important to locate a funding partner who aligns with your vision for the future.
There are dozens of potential partners you can work with in Eastern Kentucky to secure funding and grow your business. And while we can point you in their direction, it’s up to you to decide which will align best with your growth objectives.
Conclusion: Scale your small business with ease
The future is bright.
Now’s not the time to lose your long-term perspective.
Look to your early success as inspiration. And keep carrying your business forward by preparing for, seeking, and winning funding to scale your small business.
To get started, download The Complete Guide to Entrepreneurship in Eastern Kentucky.
It’s a free resource chock-full of helpful, actionable information, including checklists and step-by-step instructions. And don’t forget that you have a network of Eastern Kentucky professionals in your corner, cheering you on as you take these next steps in your entrepreneurship journey.