Whether you want to develop your marketing or buy up technical equipment for scaling product manufacture, your dreams of business expansion will need a cash injection to make them a reality.Â
For ambitious business owners, there are myriad ways to raise finances for business expansion in 2022. Here, we list five tips for getting the cash your business needs to reach the next stage of its development.Â
These general finance-raising tips apply to any type of business wanting to undertake expansion. Following these basic routes to start with, you will likely come across funding sources that are specific to your sector.
Develop a strategic growth plan
How you choose to expand will depend on your company and the particular marketplace that it is operating in. There are many different ways to grow a business but to pursue any of them, you need a strategic growth plan that is concrete, detailed, and achievable given the starting point of where you are at.Â
The plan should take the form of a report where you identify which areas of business are ripe for growth at present, the amount of money you will need to finance new technologies, marketing approaches, and staffing needs, and what you are aiming to achieve with this growth. Your growth plan should also lay out the current market opportunities out there that you are aiming to take advantage of.
You should also lay out the current financial situation of your business including profit and loss and cash flow. Costs to be factored in are wages, building rent, and insurance. Conducting a financial overview of your business will help you to identify which parts of your business may be generating excess cash that could be redirected to other areas.
Next up is to identify sources of finance that can get your plan off the ground.
Angel investment
An angel investor is a high-net-worth individual who seeks to invest in early-stage projects that seem capable of yielding profit. Early-stage projects are risky, meaning that angel investors often set aside no more than 10 percent of their investment portfolio for these purposes. For this reason, a robust strategic growth plan will be essential in convincing investors to support your business and part with their cash.
Asset financing
Asset financing is where you use a loan to buy or rent assets for your business from other companies. This is useful when you need critical tools for expansion that you would not otherwise be able to afford. There are three types of asset financing. A hire purchase is when you gain access to assets that you will own after a series of staggered payments. You can also take a slightly different route where your own business sells assets to another company and the company leases it back to you for regular payments. This is useful for leveraging a piece of equipment that you have but no longer need to own. Finally, equipment leasing is a standard renting procedure where you make payments to use another company’s assets.Â
Asset financing presents an attractive alternative to taking out a bank loan. You do not need to put down a single lump sum for some essential equipment that you need to grow your business. There is much less risk attached to this form of financing since you cannot lose money. If you do not keep up with payments, you simply lose access to a particular piece of equipment. Something you should remember is that loaning assets can work out more expensive than buying one yourself. This is because many agreements come with interest rate payments.Â
However, for many SMEs, this is one way of obtaining a much-needed boost to kickstart business growth. This can also be a reassuring way to expand your business because you know that you are paying money for a specific key piece of infrastructure that you know you will be making use of.     Â
Selling assets
Selling company assets is a great way to raise capital for expansion. The type of expansion financed by this is known as ‘leverage growth’ and many global firms are taking this route. For example, Siemens put 15 percent of its health care units up for sale in 2017. The assets you might sell do not have to be machinery or inventory stock however. They can even be intangible goods such as intellectual property.                                                                 Â
Asset sales make sense if the business landscape around your goods or services has changed in recent years. It allows you to release any capital tied up in assets that are no longer the core part of your business operations. This is a great way to renew and reorganise your firm. Perhaps the marketplace has changed in such a way that older assets you invested in are no longer generating a return. At the same time, new market opportunities may have opened, meaning that dormant aspects of your business are just waiting to be cultivated. This is when you should consider selling assets, gaining new capital, and restructuring your company.
Selling assets also means you don’t lose out completely on original investments you made in any assets that aren’t delivering like they used to. Think of it as a car boot sale before moving house – it frees up space and allows you to generate some income to cover the expenses attached to moving into a brand-new home.
Crowdfunding
Crowdfunding is a non-traditional financing source that may be of interest to SME owners. You could either sell stakes in your business in return for capital or you could take the ordinary donation-based route. The latter option is best for social enterprise firms whose social mission may inspire the general public to want to contribute to a worthy cause.Â
The most important part of getting the public to put forward cash for your business expansion is to write an effective pitch that speaks to your target audience. This is a very low-cost and low-risk approach to obtaining funding. All it takes is to post a pitch on a crowdfunding site and see how much interest it achieves. You can even receive valuable feedback that can help you sharpen your business growth plan or pitch. Â
The main platforms for businesses are Kickstarter, GoFundMe, Indiegogo, Causes, Patreon, and LendingClub. To be successful at crowdfunding, you will need a marketing campaign to generate attention, whether this is via social media ads or word-of-mouth.