What Should I Do to Expand My Business?
I have great expansion plans, based on very impressive success to date. My company’s been profitable since almost the beginning, but I also see that I need to add to the management team if we’re going to grow. That brings up a problem: I’ll need money, beyond my retained earnings and personal savings, but I’m loathe to take on debt. What should I do?
- You’ve been taking risks since you started your business—risks on marketing, risks on hires, risks on the quality of your product or service—but they’ve been calculated risks.
- You’ve weighed the benefits (and opportunity costs) of taking action. In other words, you have the experience to take another calculated risk.
- Just as you may have purchased equipment or expertise to do the job, purchasing money (and consider it as a purchase!) should be focused on how it will make you money, perhaps in the longer term, but definitely as part of a well-considered plan. The cost of the money, of course, is the interest, plus any collateral held during the course of the loan.
- How long will it take for you to pay back the loan?
I spoke with a business owner this week who calculated that it would take three fairly small sales to cover the loan—and now he’s kicking himself for not doing it sooner! (frankly, I think he was wise to wait until he had experience building smart growth.) That should be part of the equation.
Where would you source the loan?
The SBA? A bank? Some other source of capital? Each has its own benefits (and potential pitfalls), and there’s no uniform recommendation for all business owners. I would strongly suggest that you look for two things: where you would not cede control of your business, and where you feel most comfortable doing business (especially vetting the source.) With banks, that means a banking relationship with a business developer you trust. I’ve seen banks change policies, and companies follow the business developer to their next gig, moving the line of credit to the new institution.
Most important, ask yourself if you’re borrowing the money intelligently, or out of desperation. There’s a famous example of a huge industrial company that was extremely profitable until their market moved to a new (and improved) technology. They were so hidebound in their thinking that they thought they could advertise their way out of the problem–they ran an IPO and used the money to buy more advertising. It didn’t work, and they nearly went bust (until adopting a competing new technology, which saved the day.)
I’ve rented a small office suite for years, which is the perfect size for me and my staff of two. It’s in a nice part of town, and has a conference room that’s professional-looking, and is close to restaurants if I want to entertain clients. The lease is coming up soon, and I’m not sure if I want to renew. I worked well remotely (as did my staff) during the pandemic, but it just wasn’t the same as being in the office. My staff liked the flexibility as well, and have come back to working in the office a few days a week. Should I renew the lease, or move the business to my home office, meeting with clients in a conference room at a business center?
Jim Shulman
Elsinore Business Associates
www.elsinoreba.com
jims@jimText/Cell 610 908 9087
“Entrepreneurship is a chronic condition. It cannot be cured, but it can be treated successfully.” Jim Shulman
