All businesses need funding at a certain point in their lifecycle and it is absolutely normal for entrepreneurs to raise funds. Whether it is through a bank loan, family, angel investors, or venture capitalists, it is important for the business to have positive cash flow. There are a few signs your business will give and you need to take them as the ideal time to seek funding. If you have been in the industry for a long time, you will be able to clearly identify the signs that help understand that your business is ready for funding. Let’s take a look at these signs.
- There is untapped sales potential
If you often get instances when the available inventory is insufficient to meet the growing demand, it is a sign that your business is expanding and you need to keep pace with the demand. If it takes longer for the sales department to finish the orders and you often have to end your month with unfulfilled orders, it is a sign you should probably seek finance. Losing customers is not a good sign and such customers do not return. When the demand is high, it is an opportunity to take stock of the inventory and invest in it. A well-established fulfillment process will boost the number of return buyers and will enhance customer satisfaction. This is a time to invest in additional capital and build a solid system that facilitates order fulfillment. Acquiring and retaining the clients is more important and is ideal at this stage.
- You have a big contract to fulfill
When the business has received a new contract that is different from the day-to-day operations you perform, it is a sign you need to apply for funding. A big contract can change the fortunes of your company and it is one thing you should never take lightly. If you think that it could become difficult to fulfil the contract at the current level, even at full capacity, there might be a need to apply for funding. The money raised can be used to sub-contract a different business to fulfill some part of this order or you could use it to increase the capacity of the business by investing in new technology or hiring employees. After you have signed the contract, approach a small business loan provider and you will have the funds in your hand.
- There is an outstanding debt
It could be possible that when starting, a high-interest loan was the only way of financing. This is considered an ideal option at the initial stage of business development and due to this, you might have to take up a high-interest debt as it looks like the only solution. If you carry this expense, it will strain the business fundamentals in the long run and the sooner you repay it, the better it is. Establish business credit and then consider refinancing the high-interest debt to get a new low-interest loan. Alternatively, you can also consider applying for a new loan or look for cheaper financing options from a different lender to pay off the debt. It will help improve the financial position of your business and it will become attractive to investors.
- You want to invest in new technology
All businesses have to invest in systems and technology from time to time. You can have an internal discussion with the team to decide if they have the tools updated and working well. If there is a need to update the systems and technology, but you do not have the means to finance it, you should consider applying for a loan. When you invest in new technology or equipment, it will help offset multiple costs and will give you a competitive edge in the industry. Keep in mind that this is necessary only when you have an established business model. Do not take on a loan or any other investment if you are not sure about the returns.
- A merger opportunity arises
Many businesses seek external funding when they cannot afford an acquisition of a company that complements their business. Mergers and acquisitions are essential for a thriving business and they can help enjoy a strategic position in the market. If there is an opportunity in front of you, do not miss this chance and ask for funding.
- You need to hire personnel
If the current team is unable to meet the specific requirements of performing tasks, you will have a labor shortage and it can have an impact on the business. This problem can be addressed by hiring additional personnel. The process of hiring can become expensive and if you have not budgeted for it, you will have to apply for external funding. It will not only help cover the hiring needs but will also give you an opportunity to reach out to the right people for the job. Determine the return on investment from every new hire and evaluate the current employees. If you think that you can work with the current employees by paying them a bonus or asking them to work overtime, consider doing that. If nothing works and you are in need of personnel, then proceed with the hiring exercise.
The businesses that do not seek external funding at the right time tend to land in trouble. Funding is a part and parcel of a thriving business and it is something you need to consider from time to time. These are 6 signs that your business is ready for capital injection and it is important to go through the process at an appropriate time. Always consider the cost of borrowing and then make your decision. Do not rush the process and do your homework with regard to the type of loan, lender, and the rate of interest prevailing in the market. With the right form of funding, your business can soar to new heights.