“No company can afford not to move forward. It may be at the top of the heap today but at the bottom of the heap tomorrow, if it doesn’t.” – James Cash Penny, Founder of JC Penny
The popular belief is that the desire of a budding business owner to expand his or her business is a function of their longing to earn more money and profits. However, there are multiple strategic reasons why business owners should rightfully desire to expand their businesses.
Generating more revenue is just one of them. The aspiration to expand your impact to new geographies, or to increase volume to attain economies of scale, or even to build a stronger brand, or to diversify the product portfolio – these are all great reasons for expanding your business.
Challenges Of Expanding A Business
Whether it’s new products or new geographies or new branding or even new customers, growing and expanding your business is not an easy task. In an ideal scenario, you would be able to expand smoothly without any hitches.
However, the reality is that businesses do not operate in an environment which is fully under their control. There is a practical eventuality of market forces to consider.
In fact, one of the biggest challenges, when you are expanding your business, is being able to generate enough revenue while keeping abreast with the changes in the market. Another significant challenge is handling the big fish of your industry as any market expansion you make serves as a challenge for them.
Other important challenges include the macro environment, the management of scale, and the handling of cash flows. The macro-environment is extremely important as it helps determine the availability of business loans and the zest of lending bodies to provide finance for expansion and success of your business model.
The management of scale is a classic business challenge that deals with the maintaining of quality while growing fast. When your business is relatively small, it’s easier to micro-manage and sustain quality.
However, eventually, at scale, the business needs to have checks and balances for its own quality assessment. Finally, the effective handling of cash-flows is crucial for business growth and expansion.
For example, if your cash-conversion-cycles are all over the place, you are likely to face frequent liquidity issues. Therefore, managing your money and cash-flow effectively during the growth and expansion phase becomes fundamental.
Facilitating Business Growth And Expansion via Alternative Finance
Since the 2008 financial crises, banks have been reluctant to offer a line of credit to small and growing businesses. In fact, even after a decade has gone by since then, the lending environment amongst the formal lending sources is dominated by extreme caution. A classic example is the regular and prolonged failure of Funding for Lending (FLS) scheme in the UK, which failed to catalyse debt-based support from banks for small and medium-sized enterprises.
Fortunately, this risk-averse lending environment has also given birth to opportunities for the increasing adoption of alternative finance.
Alternative lenders have come up with several win-win forms of financing like unsecured business funding, merchant cash funding and invoice factoring that can help you expand and grow your business without seeking support from the banking sector.
Alternative Finance Can Be A Good Support System
Ultimately, alternative finance can only facilitate the growth and expansion of your business. However, you should not expect it to be a direct solution for everything. Even if you get financing from alternative lenders, you still need to ensure a solid cash-conversion cycle; you need to work towards the organisational capacity for scale, and prepare an executable, repeatable business model.
