As your business grows, you will need more funding. This is to cover paying for:
- new staff
- raw materials
- developing new products and features
You may be able to fund the early stages of expansion from the initial capital you used to set up the business. This may have been borrowed from the bank or come from the founders' savings. This may not be enough, however, and a major problem faced by growing businesses is overtrading.
A lack of working capital in the time between investing in business growth and realising the profits can cause serious problems for a business. See how to avoid the problems of overtrading.
Dealing with lack of finance
Lack of working capital is not the same as unprofitability, but the effects can be just as catastrophic. For a short time, you may be able to get through periods of negative cashflow by extending payment terms to suppliers, either by:
- taking additional time to pay
- negotiating longer terms
Reducing the capital that you take out of the business, freezing salaries and increasing prices may all help to produce some respite.
If problems arise from lack of cashflow, stopping expansion for a short period should enable revenue levels to catch up. Read more about business growth: cashflow management.