Home Financial consultant SMEs: 5 financial tips to facilitate SME expansion projects

SMEs: 5 financial tips to facilitate SME expansion projects

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

The past two years have been turbulent for small businesses. SMEs create jobs for millions of Indians and are considered the foundation of the national economy. Being the hardest hit by COVID-19 restrictions and multiple lockdowns, thousands of MSMEs are believed to be up for sale right now.

How can financial planning help secure growth plans?

Growing a business isn’t just about keeping your financial books in order. If you’re considering expanding your customer base, financial planning is essential to ensure you don’t strain your cash flow.

SMEs often make the mistake of financing themselves from their existing cash flows. What happens in this case is that before you know it, your business will be in a cash crunch. Some small businesses choose to find financing at the very last minute. This leaves you with very little choice and you could end up taking out loans with high interest rates and poor repayment terms.

Keep in mind that when looking to grow your business, as well as additional investments, you will be dealing with high accounts receivable and accounts payable. Poor financial planning or lack thereof can be risky for growing small businesses.

Financial planning should be part of your roadmap as you prepare to put your business on a higher growth path and reach new markets. The first thing you need to do is determine the amount of financing you will need. Contact financial experts and inform them of your plans. This will help you better understand your business’s financial needs and upcoming investments.

If you’re looking to diversify and take your business to the next level, follow these tips to ensure business success:

Analyze cash flow
Poor cash flow management is the number one reason 82% of small businesses fail. When cash flow looks good, small business owners end up financing their expansion from their reserves – this can be a costly mistake. Growing businesses have a lot more investments at stake. Your profits alone won’t be enough to cover capital needs, especially when you’re looking to expand your offerings to a wider geography.

Controlling your cash flow will allow you to better understand the financial health of your business. One of the major causes of increased cash flow burdens that most small businesses face is poor management of collections or, in other words, accounts receivable. It is important to understand that technological interventions are paramount in structuring cash flow management. Close cash flow monitoring with built-in analytical tools will allow businesses to produce cash flow projections and better plan for expansion and growth.

Plan ahead to reduce debt

When looking to reach a wider audience in new markets, planning ahead will help you align funding early on in your growth journey. It will also help you get the best possible terms for your debt. While borrowing is a great option, it’s important for small businesses to avoid the heavy burden of debt in order to protect themselves from the grim reality of “death by debt.” Reaching out to multiple financial partners and sharing your current situation can help you secure lower interest rates or arrange favorable repayment options.

Organize your business finances

Expanding into new markets and growing is a great opportunity to organize your finances. You’ll not only gain greater visibility into your financial situation, but you’ll also be in a better position to make well-calculated financial decisions. It will help you more in budgeting and financial forecasting.

Additionally, you might consider hiring an outside financial consultant to develop your overall business growth strategy. Leveraging digital solutions designed to make financial management easier for small businesses will also go a long way in streamlining expansions into new markets.

Focus on quality, high-margin customers

Slow-paying customers can lead to unwarranted cash flow disruptions. Growing small businesses need to focus on high-quality customers who pay on time. Accelerating cash flow will be a competitive advantage for your business. In this regard, you may consider offering incentives or discounts to encourage early payments. This is another great way to ensure smoother finances and fewer hiccups in cash flow.

Contact your suppliers

You could ask your suppliers for discounts or deferred payments. Most suppliers would be willing to work with you on mutually agreeable terms rather than lose your business. Suppliers might also consider offering you financing. Taking advantage of a loan, if it results in a sale, could be a win-win situation for the supplier and your business.

Boost your business growth with better financial planning

When looking to take your business to the next level and enter new markets, a well-defined financial plan to support your growth strategy can give you a competitive advantage. These financial tips will help you plan for greater business growth and future contingencies, without straining your existing cash flow arrangements.

(The author is co-founder and CEO, CredAble)

(The one-stop destination for MSMEs, ET RISE provides news, views and analysis on GST, exports, finance, policy and small business management.)

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