Small business owners are doing well and feeling optimistic about the upcoming year according to a new report from the New York Times. Close to 60 percent say they expect revenue to climb and 67 percent say they plan to expand this year. More than a quarter intend to bring on new employees as well. While this is great news, it’s also important to have a strategy in place before moving forward in order to avoid growing pains as the year progresses.
1. Create or Update Your Business Plan
At the very least, your business plan will help you stay organized during the upcoming year. You’ll be able to reference it and conduct your own internal audits to ensure you’re following through on all the plans you made. It will also be essential if you’re hoping to leverage any kind of financing this year — a traditional loan or line of credit, for example.
While business plans for large corporations can exceed hundreds of pages, yours doesn’t need to be quite so intensive. However, it should include an executive summary and coverage of your:
- Business description
- Market analysis
- Organizational structure
- Sales strategies
- Financial projections
- Financial needs
2. Gather Your Financial Statements
Having your finances in order is essential whether you feel confident you can expand without financing or intend to apply for a loan or line of credit. If you’re planning to expand without financial help, you still need to know exactly what you can afford to devote to expansion this year, but if you’re hoping for a loan or line of credit, advance preparation may determine your success. Data from the Times concludes just 46% of small businesses are successfully funded, up from 44% only a few months ago, so you’ll not only want to be prepared, but also have a backup plan to cover your expansion if traditional lending channels don’t come through. For example, invoice factoring is often ideal for B2B companies which complete work or deliver goods, then bill their clients after. By selling your invoices to a third party, your business can reduce waits for payments and streamline your collection process, which might make it possible for your business to grow without a loan.
Complete a full profit and loss statement with expenses, revenue and proof of growth. You can use this to calculate your expansion needs or to demonstrate to lenders that your business is a sure bet. Now is also a good time to check your credit, so you can take steps to improve your score before applying for funding if need be.
3. Check Your Cash Flow
Whether you plan to use your revenue for growth or you’re applying for loans, it’s important to have a steady stream of cash coming into the business. Make note of any lean times your business usually has, so that you can reduce expenses during that time frame or use strategies to increase revenue/ cash flow to ensure you can keep up with any new expenses year-round. This is another area factoring can help with.
4. Run a Cost-Benefit Analysis on Any New Expenses
Many small business owners make the decision to hire new people while they’re being run ragged by new orders or customer requests. While it may be true that you can’t keep up with demands without bringing on help, it’s important to look at the bigger picture before committing to a full-time employee or employees. Will you have enough work to keep them busy all year? Will hiring someone make you subject to new laws, like formal payroll, offering health insurance, increasing your liability insurance, and so on? Consider all the expenses associated with new hires. If it doesn’t make financial sense in the long run to have someone, look into other options, like hiring subcontractors, outsourcing or automating.
The same is true for any expansion plans you have, whether that includes purchasing/ leasing new equipment, upgrading your office, or investing in marketing. Identify what the full cost of each endeavor will be, including hidden costs, and calculate whether it’s a financially-sound decision in the long run and if you’ll be able to cover monthly costs throughout the year.
5. Run Your Plans by Experts
Scaling up is a big move. Bring on experts who can help ensure you’re not overlooking anything. For example, an attorney can make sure you’re handling your new hires correctly and that you’ve got the proper licenses to operate, while an accountant can run through your numbers to make sure you’ll stay in the green all year.
Expand with Help from Interstate Capital
At Interstate Capital, our specialty is helping small businesses grow. We do this primarily through invoice factoring, so our clients receive lightning-fast payments that keep their businesses moving. However, we also assist with a number of things, like ensuring our clients have the equipment they need, and that are connected to the right professionals for their business needs. If you’d like to get set up with invoice factoring to improve cash flow or simply to have a backup plan in place, get your free factoring rate quote now.