6 steps for small business growth
Rapid growth without a plan can sink a business. On the other hand, growing too slowly can leave your business vulnerable to competitors who are scaling and innovating faster.
Growing a business takes proactive planning, a solid financial foundation, efficient operations and a strong support system. The business specialists from Commerce Bank offer these practical steps for preparing your business for sustainable growth.
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Take ownership of your growth.
The most successful businesses are actively engaged with their bankers and accountants. We recommend regularly reviewing your financial statements, setting measurable goals and tracking progress with key performance indicators. By taking a proactive, collaborative approach, you’ll be more in control of your company’s current and future financial picture.
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Manage cash flow.
Growth isn’t just about sales, it’s about liquidity. Insufficient cash flow causes most business failures. Keep cash flowing by closely monitoring receivables and promoting faster payments with online options. Our business specialists suggest keeping at least six months’ worth of operating expenses in reserve. When a business falls below that cushion, finances become risky and hard to sustain. Companies with cash on hand are better prepared to handle problems without relying on debt they might struggle to repay.
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Prepare now for future financial needs.
Business growth requires planning. If you’re considering a future business loan, start by evaluating your current financial position. You’ll need to show your business has been profitable. A good rule of thumb: a company needs to generate $1.25 in revenue for every $1 it wants to borrow. This ratio helps prevent new debt from becoming a burden. You can work with your accountant to align tax strategies with future borrowing needs. Additionally, banks will encourage business owners to reach their industry’s key performance indicators using their NAICS or industry code. These benchmarks provide valuable insights into what healthy performance looks like for businesses of a similar size and type. Our business specialists can help you understand what to do now to make your loan application process smoother in the future.
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Diversify to reduce risk.
One of the smartest moves any business can make is to diversify its revenue sources. Relying on a single client or product can leave a business especially vulnerable. It’s worth considering an expansion into new products, services or markets to stabilize income and decrease risk.
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Create efficiencies with technology.
As business owners prepare for growth, it’s even more important to manage their operating responsibilities efficiently. Replacing manual processes with automation on platforms like CashFlow Complete makes processing payables and receivables quicker and more efficient, thanks to integration with existing accounting software. Enhanced digital security also protects against payment fraud.
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Invest in long-term relationships.
Building strong relationships with your bank’s business teams can be one of your company’s greatest assets. By sharing updates on your business and planning, they can provide tailored guidance and solutions to help you reach your goals. Through their experiences, these specialists have valuable insights and resources that can benefit your business.
The bottom line.
Growth isn’t just about boosting sales, it’s about establishing a solid financial foundation, managing cash flow, preparing for expansion and maintaining proactive relationships with your financial team. Businesses that follow these steps are well-positioned to grow and sustain long-term success.
