How to grow your business without borrowing

Those who’ve attempted to get new lending or renew an existing loan will know how hard it is right now, so how do you grow your business without borrowing?

As a result of the credit crunch, banks have pretty much shut up shop in terms of business lending to both small and medium sized businesses. Lack of lending can mean you’re unable to grow your business as quickly as you would like.

Financially speaking, there are two places where you can improve cashflow and find efficiencies in your business:

Your Profit & Loss
Your Balance Sheet

Profit & Loss

How to grow your business by improving sales

Look at what you are selling and determine which ones are making money and which aren’t. If you want to grow, you need to grow the profitable lines. It’s the old 80/20 rule – concentrate on the 20% of customers, products and services that provide 80% of your profits.

Internet marketing can be much more cost effective than traditional forms of marketing. Remember you want qualified traffic, not just traffic, so be specific about how you attract your visitors.

How to grow your business by reducing costs

Look at what products and services you are buying and spend some time investigating and negotiating better deals and more efficient ways of delivering.

Don’t underestimate your value as a customer and don’t be afraid to shop around for other suppliers.

You should also look at your overheads as this is an area where you can make massive savings. Do a review of all overheads and ask:

Why am I spending this and what ‘value’ does it deliver onto the bottom line? Should I cut it out?
How could I do this differently to achieve a similar result?
Who else could deliver this product or service and how much would they charge?

Balance Sheet

You need to chase outstanding customer accounts as the rewards you’ll get from receiving the extra funds will make your efforts worthwhile. Once you get into the habit of ensuring customers pay on time you will need to borrow far fewer funds to run and grow your business.

Conversely, as the business owner you should have very tight control over payments to suppliers. I have seen this time and time again – business owners pay the bills faster than they need to. This puts unnecessary stress on cashflow.

If you deal in products, watch your stock levels. Try to think of stock as hundred dollar bills sitting on your stock room floor. You need to know your stock usage patterns and set a program for purchasing stock.

See if there’s a way of speeding up work in progress. The aim is to get jobs finished as quickly as possible so that you can invoice customers and get paid. If you can get a deposit to cover costs, this is a great place to begin injecting cash into your business. Progress payments are also a great way to ease the cashflow burden.

A job management system may seem like an expense, but once installed into your business you have it forever, creating efficiencies and improved cashflow.

If you can implement the above improvements in your business the level of money ‘freed up’ to grow your business may mean you never have to go cap in hand to the bank again!

Sue Hirst is the founder of CAD partners (also known as ‘CFO On-Call’), a team of Financial Controllers who can help business owners grow their business safely.

10 comments | Add your own 1 2 | Next» View all»

Sue, What % of your clients who are solo flyers borrowed money (excluding a credit card) to grow their business? Heather Smith from Bris Vegas
Hi Heather
Sorry I can't answer this question exactly. Is there a specific question about your business that I can help with?
Regards
Sue Hirst
CAD partners
www.cadpartners.biz Sue Hirst from Woy Woy Australia | Read my articles
Sue, that is very concise and helpful information - thanks! Rich from Sydney
Hi Sue - there's an old theory that if you cut costs by 5%, increase margins for each $ sold by 5% and increase sales by 5%, you'll be a zillionaire. The next theory is that if you're a zillionaire, the banks will lend you money, 'cos they don't want to miss out. The final theory is that whilst if you owe them thousands you've got a problem, but if you owe them millions, they've got a problem! Therefore, try the 5 x 5 x 5 theory and you'll be fine!
More seriously, though, I think you've offered some great advice here, as per the old adage for tough times "watch the pennies and the pounds will take care of themselves!" Grant Hyman from Sydney | Read my articles
Hi!
Sorry did not mean to be intrusive. I just had a 180 degree view on the affect of the ‘credit crunch’ and the solo operator. I have an article coming out shortly; where I share my opinion that the solo flyers do not extensively use credit within their business. I was worried that my article may be painting a false picture. My clients are mainly based in Brisbane area, and I can not think of any of the solo or micro businesses who has business loans.
I was at a business breakfast this morning with the Minister for Small Business, and a small business operator, expressed his concerns that home loans interest rates had come down, but business loan interest rates were slow to do so. His business appeared to be a reasonable size though. So it is definitely very much a concern for larger businesses, hopefully us solo flyers can weather the storm.
I guess maybe it might be different here in country Brisbane . . . I shall keep listening.
Good Luck with the races!! Heather Smith from Bris Vegas
Hi Heather
It's probably difficult to generalise about solo operators' loans. My feeling though would be that many have borrowed against equity in their own homes, so hopefully the reduced home loan interest rates will help. The real point is that loans should be used as a legitimate way of funding growth in business and not for masking inefficiences in financial management . Loans have been easier to access in the past but the 'credit crunch' has made lendors more cautious. Lendors have ratios for measuring efficient financial management and appear to be adhering to them more strictly now. Examples I have heard recently indicate lendors are more demanding in requiring accurate projections, cashflows and up to date financial reports than in the past. A lendor driven demand could turn out to be a god-send for small business in the end.
Regards
Sue Hirst Sue Hirst from Woy Woy Australia | Read my articles

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