Growing your business – balancing risk and reward
I often have conversations with business owners about growing their business. They ask my advice as to whether they should go slow and steady by reinvesting profits and borrowing a little when needed, or should they max out their borrowing to expand the business more quickly?
By reinvesting their profits, I warn them that their growth will be slow. If they borrow more and use greater amounts of external funding, they are likely to get a greater Return on Their Investment. This is largely because they are able to use these additional funds to ensure they have more money to add to the initial investment. However, the counter to this is that the risks are far higher. When its not your money you are investing, you are reliant on the lenders/ investors/ suppliers having the confidence to leave their money in until the investment matures. If they suddenly request their money back, where do you turn?
So my usual advice is to try to strike a balance. If you can bring in a degree of external finance but not be too reliant on it, you may be able to achieve good growth without risking everything. But that is the big question. What is the right balance? Are you by nature more cautious, or do you take more of a calculated gamble?
Here at Business Funders we can help in any situation. We can help provide the finance to allow you to grow, to keep growing, or indeed if things have started to go wrong. Remember, we are always here to help, and there is usually a solution we can find to help you!