Accounting & Finance
How to Fund a Business Expansion
It’s one thing to come up with a winning business idea and launch it. It’s a whole other thing entirely to turn your business idea into a long-term financial success. According to a study by Statistic Brain, entitled Startup Business Failure Rate by Industry, over 50% of U.S. companies fail after just five years and over 70% fail after 10. The study’s findings suggest that the main causes for failure include a lack of focus, a lack of motivation, taking advice from the wrong people and raising money too soon.
In another study, the organization CB Insights, takes a look at why new businesses fail and presents the information gathered in a list of 20 main causes for business failure. Reasons include no market need for the product or service, strong competition, poor marketing and running out of cash before reaching goals. Getting the right kind of funding for your business, particularly when trying to expand as the years go by, is vital to the company’s success. So… how should you go about it?
1. Take out a loan
When taking out a business loan, make sure you consider all the options available. While familiar banking groups are a valid option, they’re most definitely not the only possible route to finance. It’s also important not to be taken in by low and too-good-to-be-true interest rate figures that make the headlines. While offers on low interest rates for businesses with solid business plans in place do exist, headline figures are often designed to stand out and catch attention. They don’t necessarily impart the full picture.
2. Work with investors
When turning to investors, you have the option of applying for venture capital funding or working with private investors interested in financing your business’ expansion. One really good reason for soliciting the help of a private investor is that he or she might be able to offer financial insight and experience related to your expansion plans, bringing to light a perspective that you may not have previously considered.
The challenging aspect for some business owners is that most private investors will ask for a share of your business in exchange for the funding. When negotiating terms and conditions that relate to this equity, it’s important to keep in mind just how much of a say in your business and the decisions made you are happy for your investor to have.
3. Apply for crowdfunding
Another way of funding the expansion of your business is to apply for crowdfunding. There are a number of different platforms available, including Kickstarter and Indiegogo, which was founded in 2008. This option is a particularly effective one if you can be certain that your business has a loyal network of followers and/or customers who want to see your business expand as much as you do.
In fact, those who invest in your business via crowdfunding platforms have the potential to turn into positive micro-investors; little brand ambassadors who will create the right level of buzz and excitement about your up-and-coming expansion across social networks and via word of mouth. This means that on top of the funding you receive, you will also benefit from the added kick of free publicity.
4. Try credit card stacking
An inexpensive tactic, compared to other financing options available, is the credit card stack, particularly if your business is a low-revenue one. By simply using a number of credit cards, with total credit limits equaling the amount of financing you need, you can club together the investment necessary to get the ball rolling on your expansion without too much difficulty. Even so, it’s not the easiest of tasks to get your head around and so it might be an idea to consult a financial expert before you sign on the dotted line.