Are You Prepared for Sudden Growth Spurts?
Provided by Visa, Content Partner for the SME Toolkit
Sudden growth can be the worst thing in the world. Here's a hypothetical scenario: a business's sales increased 8 to 10%. In a second hypothetical, the same business had a 40% growth spurt. Conclusion: in the 40% growth hypothetical, the business was forced to close because too much cash was required during the growth spurt. Here are two tips:
- Avoid long-term borrowing.
Dramatic growth is not going to be solved by long-term borrowing. That's a dangerous way to go about it because your debt to worth ratio is going to get way out of whack—that is you'll owe far more money than you own. Instead look to your bank for a revolving line of credit. That way if growth causes a dip in cash, you can still pay your bills.
- Have sufficient people, equipment, and floor space.
Growth consumes everything in its path. You need to assess (hopefully with financial projections) how much ‘front-loading' you'll need to do so that if you do borrow, you've asked for enough.
- Credit cards and lines of credit can help bridge key growth spurts.
Sometimes dramatic growth can best be managed by tapping credit cards and lines of credit, both of which offer flexibility and additional options.
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