Is This the Right Funding for Your Startup and Growth Business Goals?

Everything has a lifecycle. Terms like “pupa” and “larva” may come to mind, but what we’re talking about here is the business lifecycle. And yes, your business has one.

Whether you’re a startup or in the growth stage or running a mature business with loyal customers and an enviable market share, you still have goals, and you’re going to face obstacles and challenges both strategically and financially trying to reach them. While strategic decision making will often depend on your industry and the specifics of your business model, the financial challenges in each stage are a little more predictable.

So where do you find funding for your dreams? We’ve broken down the financial challenges you’re likely to face, whether you’re running a startup, working on your first product launch, or opening three new branches across the country.

Surviving the Startup Stage of a New Business

The business lifecycle starts with the “introduction” stage which goes by a few different names, including “startup” and “early stage,” and involves many different milestones of a new business. As an early stage business, you’re conceptualizing your idea and outlining a business plan. You’re training staff and preparing your business for launch. After you open your doors, you’re grinding to build a brand and gain market share.

Financial Challenges of Startup Businesses

While your startup business might be new and not bringing in a lot of revenue early on, your expenses can add up during this phase. Shopify conducted a recent survey which found that small businesses spent between $18,000 (no employees) and $60,000 (1-4 employees) in their first year.

The financial challenges and expenses of your business will depend on the industry and market within which it operates, but below are some of the common expenses that many new small businesses face.

• Business Registration Fees: Unless you’re operating as a sole proprietor, you’ll need to register your business with and pay fees to the state. 
• Business Licenses: Many industries like hospitality or construction require the business owner to acquire specific licenses in order to operate their business.
• Business Insurance: Your business may also need to purchase general liability, property, or other industry or location specific insurance before opening its doors.
• Brand Assets: You may also need to purchase a domain, logo, website, trademark, phone number, email, or other basic branding assets.
• Equipment: If your business requires machinery or equipment, you’ll need to purchase or lease it before opening.
• Employees: You may also need to hire staff and pay for the equipment and training needed.
• Marketing: To build a new brand within an existing market, you’ll need to spend money on advertising and marketing.

Funding Solutions for the Early Stages

Most business owners can’t cover $18,000-$60,000 on their own, and if the business isn’t bringing in enough revenue to cover the upfront and ongoing expenses, you may need to seek additional financing.

Some common ways to fund your business during the early stages include:

• Friends and Family: Shopify’s research also found that 23% of businesses surveyed turned to friends and family to help fund their startup. While it can be tricky to mix family (friends) and business, it’s one of the easiest ways to find financial help.
• Business Line of Credit: A business line of credit is like a safety net for a new business because you are approved for anywhere between $1,000-$500,000, but you’re only charged if you decide to use it.
• Startup Business Loan: While it’s not always easy for new businesses to acquire traditional financing, you may have better luck with a startup loan. Startup loans are designed specifically for young businesses and can get them access to capital needed to get their startup through the early stages of its lifecycle.

Maximizing Your Opportunities While Growing

After the introductory phase of the business lifecycle comes the growth phase. This is a great time for business owners because it’s no longer just about survival— it’s now about opportunity.

Your business is thriving, you have a strong core of customers, and you’re operating in an upward trend. Now, you have to find and capitalize on the opportunities available to avoid hitting a plateau or worse.

Financial Challenges During the Growth Stage

The growth stage of the business lifecycle is arguably the most important because the decisions you make now have immediate and long-term financial consequences. While each business will have its own expenses and financial hurdles while scaling, below are a few common ones which you may face yourself.

• Resource Allocation: Resource allocation is one of the biggest hurdles during the growth stage because it requires an understanding of your financial and resource bandwidth. For example, if you run a construction business you may have a team of qualified contractors who you have used for many years and trust to complete your work. During the growth phase, you may hire new contractors to take on more jobs. If you’re unable to vet these new contractors or train them appropriately, you could risk sacrificing quality and hurting your reputation. So, you have to decide between saying no to customers or allocating more resources to hiring and training.
• Opportunity Cost: Opportunity cost is the loss of potential value of another business decision. If you can only fund one marketing activity this quarter and have to choose between sponsoring a local event or running Facebook Ads—the loss of potential return of the decision you didn’t pick is the opportunity cost.
• Scaling Expenses: As your business grows, so do your expenses. From more labor costs and material expenses to upgrading machinery or expanding to a new location, there are many costs that come with success.

Funding Solutions During the Growth Stage

A lot of the financial hurdles you’ll face during the growth stage involve your cash flow and having the capital available to seize on the opportunities you need in order to continue growing.

Even though the growth stage tends to mean more revenue, you also have more expenses and because opportunities do not last forever—you may need to tap into external resources to help you get capital quickly. Below are some of the common funding solutions to help you scale.

• Equipment Financing: The growth stage often means upgrading or adding new equipment or machinery. An equipment loan may be the perfect financing solution because it uses the equipment as collateral for the loan which means less liability on your business.
• Accounts Receivable Financing: If your business gets in a cash flow bind while waiting on unpaid invoices, accounts receivable financing can help. AR financing uses a system called “factoring” that allows you to receive 80% of an account receivable upfront and the remaining less factoring fee once the invoice is paid. Best of all, the factoring company handles the collections process.
• Business Credit Card: A lot of decisions during the growth stage are timely and require immediate access to capital. Having a business credit card can give you the latitude needed to make smaller financial investments on the spot.

Avoiding the Lulls of Maturity

The next phase of the business lifecycle is maturity which is often associated with a slowing of growth and eventual decline in business—although that doesn’t necessarily need to be the case.

You see, maturity in the business lifecycle sense means that you have a secure, stable, and profitable business that is more-or-less self-sufficient. As a business owner, you have to decide if you are comfortable (complacent) or if you’d like to continue growing.

Financial Challenges During the Maturity Stage

One of the benefits of making it to the maturity stage is that you can typically fund a lot of the investments you may want to make using revenue from the business. Afterall, you don’t make it to maturity without having built a successful and profitable business.

With that said, you will still face financial challenges—even if you’re in a better position to deal with them. Below are a few hurdles that will affect your mature business financially.

• Slowing Growth: The growth stage meant hefty investments to fuel an increase in demand. However, as you begin to reach maturity, the scale at which you’re growing will slow—meaning you will need to pull back investments that were based on larger growth projections.
• Increased Competition: If you’re in maturity, you have proved demand for your product or service in the market. This proof of concept means you’re likely to see an increase in new companies competing for your customers. The more competition you face, the more money you have to spend defending your market share.
• Expanding: If you’re not content during maturity, you may decide to expand your business through acquiring another company, releasing a new product line, or entering a new market. The costs of expanding during the maturity stage tend to be much higher than other growth strategies from previous stages.

Funding Solutions During the Maturity Stage

While your business may be able to cover a lot of the typical expenses that come during maturity, the larger investments may mean looking outside your business for funding. Below are a few financing solutions to consider during the maturity phase.

• Term Loans and Similar Financing: You’ve been around for a while and not planning to go anywhere, so signing on for a term loan to tackle big goals, including expansion or new product development, can be the right fit for your timeline. Interest rates are often lower on term loans and total amount borrowed can be higher, which could help you acquire a competitor or purchase real estate to expand your business.
• Equity Financing: During maturity, you may be tempted to sell some of your ownership in the company in order to finance growth or simply capitalize on the success of your business for your own personal gains. In either case, equity financing which involves selling shares of your business for money, can come into play.

Find the Right Financing for Your Business

At the end of the day, every business is different and the needs of one company may not mimic another—even if they are both in the same phase of the business lifecycle. What’s most important as a business owner is that you understand your financing options and take the time to think critically about your unique position and where you want to take your business forward.

While the scenarios and solutions above can provide a framework for you to follow, consider taking the time to chat with a professional about your unique financial situation before making any decision.

_{Information provided on this blog is for educational purposes only , and is not intended to be business, legal, tax, or accounting advice. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. While Lendio strivers to keep its content up to-date, it is only accurate as of the date posted. Offers or trends may expire, or may no longer be relevant.}