From Taxes to Expansion: The Financial Puzzle of Business Growth
Growth is something that many businesses are striving toward. It’s a marker of success, as well as being a potential pitfall. Expand in the wrong way, and you might never recover.
As such, it’s critical that you have a comprehensive plan in place for your growth. This should encompass your tax affairs, the way that your business is structured, and where you’ll obtain the financial backing to grow your business quickly.
Tax Implications and Planning
Larger businesses are often taxed and different rates. In some cases, a small growth can result in an outsized increase in your tax obligations. Think about the corporation tax you’ll be paying, along with any deductions you’ll be able to make to offset them.
This is where a proactive approach can yield substantial benefits. Bring in an impartial consultant, and form a plan that will keep you on the right side of the law, while optimising your outlay on tax.
Funding Options for Expansion
A certain kind of business might be so profitable that it can fund its own expansion. These businesses are rare. In most cases, you’ll have a plan for growth in place before you have the cash to pursue it.
Different sources of funding present different advantages and disadvantages. Equity financing involves giving up a portion of your ownership of the business (a little bit like Dragon’s Den), while debt financing means taking out a loan that you’ll be expected to repay with interest.
Then there’s venture capital, which involves larger institutions and individuals placing long-term bets on smaller businesses. If you have an idea with potential, then a VC investor might recognise that potential and seek to help you meet it.
Cash Flow Management
One major obstacle to growth in the long term is cash flow. If your debtors aren’t paying you promptly, for example, then you might have to delay payment to your employees – or take a loan out to cover the difference. Liquidity is like lubricant for the gears of your business; without it, those gears might grind to an unseemly halt.
As such, it’s important that you factor in the need for cash flow into your plans for expansion. Think about how your investments can be balanced against your need for financial stability.
For example, if your expansion plans require the construction of a new warehouse on the other side of town, then you’ll need to not only secure the funding to build that warehouse, but also have the cash left over to meet your day-to-day expenses, and to absorb any unforeseen events.
Of course, investors are aware of the potential for risk here. Cash flow statements will allow you to demonstrate to them that your business is a sound investment.
11+ years strategic communications, marketing, and project management experience. I am a trainer at StarWood Training Institute, focusing on online courses for project management professionals.
