Expanding your business is the only way to build it into a competitive force in the local or regional economy. Even if your niche is specialized and there are few other players, you’ve got to capture the market that’s there if you are to reach a point where your business is able to support your family and future. Accounts receivable financing is a great way to work out an expansion without going into debt to fund the additional space and personnel you need. As an alternative to debt financing, it uses your invoices to normalize cash flow so you can more easily marshal the resources needed to invest in new equipment, hire people, or pursue additional locations.
Expanding Business Capacity
The maximum volume of business your company can handle is dictated by its ability to sustain outgoing payments that support the work. You need to account for labor costs, utilities, and overhead on existing debt or lease payments. Before worrying about a bigger facility or another location, the first step is to take on as much business as your current operation can handle. Hire up to your equipment holding capacity as needed, then focus on investing in the extra workstations to maximize your space.
Additional Floor Space or Locations
A second location is not always the ideal for a company’s expansion, but accounts receivable financing can just as easily fund an addition to your current building as a move into a larger one or a second location. Second sites are great when you are expanding services in a completely new direction, like when a tool and die company spins out a plastics company as a subsidiary. They are also excellent investments for services and retail businesses because they allow you to attract customers who are too far from your first location to patronize your business conveniently. Expansions are better for businesses that need to expand capacity but not necessarily the radius of their market
Scaling Cash Reserves With Expanded Capacity
The normalized income from accounts receivable financing increases working capital and allows you to reach a peak volume of business more easily, but it needs to be balanced against other factors for sustainable business expansion. Not only do you need to keep an eye on the overhead as it increases with the hiring of new people and acquisition of new equipment, you also need to consider the burn time in your cash reserves. In the event of a large unexpected expense or downturn in demand, that burn time becomes important. Remember, budgeting for expansion must also include budgeting for the additional overhead costs during that burn time.