Building a business is both a science and an art; in the sense that growth has been studied extensively and various factors have been identified as key drivers. Growth is equally in art given that the direction the company is moving in is uncharted, and past data can only get you so far. Intuition is required. One thing that is not in question is the need for business owners to secure financing to achieve growth. Understanding the different forces at play throughout the financing process will only benefit the entrepreneur.
Businesses often face fixed costs in the short term which can be daunting. Cost of construction, research and development, and managerial overhead all cost the business money from day one, yet their return to the firm will be realized over a very long lifetime. Small business capital can help solve this timing problem by injecting the necessary funds into a business to get the ball rolling.
Preparing to receive investment can actually serve as a great catalyst for the business to start thinking about their future critically, and to identify hurdles that they would not otherwise have perceived. Investors will want to see a concrete business plan, and this can accelerate the process of setting up a proper legal structure, along with taking care of key responsibilities such as insurance and compliance with state and federal business legislation.
Small business capitalis crucial because investors will be able to recognize situations that other businesses have faced, and how capital can be deployed efficiently to overcome the problems that will arise. Equally important, investors have a great depth of knowledge about what funding will be required at later rounds of business growth, and can ease the transition of the business to a larger platform. Having small business capital actually serves to increase the number of people who are invested in your business and want it to succeed. From developing key partnerships, to identifying new markets that the business might tackle, the experience can be about much more than just capital.
The form of investment can take a multitude of forms, depending primarily on the business need. Whether the capital is delivered as a loan depends substantially on the business’s existing assets. In lieu of a secured loan, some investors may take an equity stake in the business. Developing the appropriate financing structure for your business is a collaborative process, so it’s helpful to research what has worked for similar businesses in the past.
It is usually a good idea to take care of financing before you think you have to. This is because things usually cost more, and take longer than one would expect. Most importantly, as an entrepreneur, you want to be concerned with the day to day running of your business, without always worrying in the back of your mind about keeping the lights on.
As any business owner will tell you, scaling up takes capital, and it is important to find the right type of growth capital for your business. Finding the right business capital is essential, as the time horizon, terms, and professional expertise which accompany capital contribute to the businesses’ success.
Author: Scott is a freelance business writer, who specializes in small to medium size business development. When he is not writing, he is not writing he is hiking in the mountains of upstate New York.