5 financial tips to make expansion plans easier for SMEs

The most important element for any small business planning expansion is to obtain funding to mobilise the materials, men and methods. When you’re looking to venture into a new market, financial planning becomes crucial in order to ensure that the investment which you make doesn’t end up hurting your cash flow and drowning your business.

The last two years have been turbulent for small businesses. SMEs create jobs for millions of Indians and are considered to be the bedrock of the nation’s economy. Being hit the hardest by the COVID-19 restrictions and the multiple lockdowns, thousands of MSMEs are reportedly up for sale now.

How financial planning can help secure growth plans?

There’s a lot more to business growth than keeping your financial books in order. If you’re looking at widening your customer base, then financial planning is critical to ensure that you are not straining your cash flow.

SMEs often make the mistake of financing out of their existing cash flows. What happens, in this case, is that before you know it, your business will be caught up in a cash flow crisis. Some small businesses take the route of lining up financing at the very last minute. This leaves you with very little choice and you might end up taking loans with high interest rates and poor repayment conditions.

Bear in mind, that when you’re looking to grow your business, along with additional investments — you will be dealing with high accounts receivable and payable. Poor financial planning or the lack of it can be risky for growing small businesses.

Financial planning should be a part of your roadmap as you gear up to set your business on a higher growth path and reach new markets. The first thing you need to do is work out how much financing you will need. Reach out to financial experts and brief them about your plans. This will help you get a better understanding of the financial needs and upcoming investments of your business.

If you’re looking to branch out and take your business to the next level, following these tips will set your business up for success:

Analyse the cash flow
Poor cash flow management is the primary reason why 82% of small businesses fail. At times when the cash flow looks good, small business owners end up funding their expansion out of their reserves — this can be a costly mistake. Growing businesses have a lot more investments at stake. Your profits alone will not be sufficient to cover the capital needs, especially when you are looking to expand your offerings to a wider geography.

Staying on top of your cash flow will give you a better understanding of the financial health of your business. One of the leading causes for rising cash flow burdens that most small businesses face, is the poor management of collections or in other words, accounts receivables. It’s important to understand that technological interventions are paramount in structuring cash flow management. Closely monitoring cash flow with integrated analytical tools will empower businesses to produce cash flow projections and better plan for expansion and growth.

Plan ahead for debt reduction

When you’re looking to reach out to a wider audience in new markets, planning ahead will help you line up financing early on in your growth journey. This will also help you secure the best possible conditions for your debt. While borrowing is a great option, avoiding the heavy burden of debt is important for small businesses to save themselves from the sad reality of ‘death by debt’. Reaching out to multiple financial partners and sharing your current predicament may help you secure lower interest rates or arrange for favourable repayments options.

Organising your business finances

Expanding into new markets and driving growth is a great opportunity to organise your finances. You will not only gain greater visibility of your financial standing but also be in a better position to make well-calculated financial decisions. This will further help you with budgeting and financial forecasting.

Additionally, you could consider taking the help of an external financial consultant in plotting your overall business growth strategy. Leveraging digital solutions that are built to ease financial management for small businesses, will also help you a great deal in streamlining expansions to newer markets.

Focus on high-margin, quality clients

Slow-paying clients can cause unwarranted disruptions in cash flow. Growing small businesses need to focus on high-quality clients that pay on time. Speeding cash flow will be a competitive advantage for your business. In this regard, you can look at offering incentives or markdowns to encourage early payments. This is another great way to ensure smoother finances and lesser hiccups in cash flows.

Reach out to your suppliers

You could request your suppliers for discounts or deferred payments. Most suppliers would be open to working with you in mutually suitable conditions rather than losing out on your business. Suppliers could look at offering you financing too. Availing of a loan, if it results in a sale could be a win-win situation for both the supplier and your business.

Power your business growth with better financial planning

When you’re looking to take your business to the next level and move into new markets — having a well-defined financial plan to back your growth strategy, can give you a competitive edge. These financial tips will help you plan for greater business growth and contingencies ahead, without straining your existing cash flow arrangements.

(The writer is co-founder & CEO, CredAble)

(The one-stop destination for MSME, ET RISE provides news, views and analysis around GST, Exports, Funding, Policy and small business management.)

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