Small Business Growing Pains: Common Financial Challenges

Common Financial Challenges

While many entrepreneurs thrive on driving business dreams toward success, financial challenges can drain the energy from even the most committed business owners. The good news is that with some planning, attention and advice, the most common financial challenges won’t be barriers to growth.

In this article by Excelsior Growth Fund’s Business Advisory Services team, we look at five common growth-stage financial challenges and how to prepare for and overcome them.

1. Challenge: Growing without a business plan or strategy

If you don’t have and use a business plan, it’s like driving across the country without a map or GPS: You may have a general idea of where you’re going, but it’s going to take a whole lot longer to get there and you’ll waste a lot of time and precious financial resources on the way.

A solid business plan includes a direction for your company, knowledge about your target market, key competitors, industry fluctuations and threats, sales cycles, marketing and more. It’s an invaluable tool that can help you make critical decisions and identify where to spend financial resources. This is a living and breathing document that needs to be updated as the company grows, pivots or changes.

Our advice:

  • If you haven’t already put together your plan, start here to learn the basics and then begin creating your plan.

  • Conduct a SWOT analysis (strengths, weaknesses, opportunities, and threats) to help you identify a strategy for growth.

  • Use available free tools to strengthen market research: Dig deeply through internet searches and talk to industry professionals. Meet with your local Small Business Development Centers, SCORE advisors, local colleges and universities and chambers of commerce. All can provide invaluable information and networking resources.

  • Get input from key team members—your accountant, attorney, lender and trusted colleagues—to create the strongest plan possible.

2. Challenge: Growing without a marketing plan

In truth, it’s difficult to grow at all without planned ongoing marketing and outreach efforts. Too often, business owners rely on short-term or one-time blitzes, like a heavy marketing schedule during the holiday season. It’s important to stay in your customers’ minds, even when they’re not in buying mode.

Our advice:

  • Incorporate ongoing, cost-effective marketing and outreach strategies, including a digital media plan and social media presence. Use your website for overall company information, Facebook for events or one-time happenings (like a special flavor-of-the-day or buy-one-get-one sale), and Instagram for photos of new products or projects.

  • Consistently do all you can to boost your brand through your business’s actions and offerings. Support local initiatives that tie-in with your business, such as sponsoring a local little-league team or buying a corporate table a fundraiser. Many of these are surprisingly affordable ways to keep your business in front of target markets in ways that strengthen brand loyalty even when your business may be in a slower sales cycle.

  • Use collaborative opportunities to build new customers from other businesses, such as participating in “buy local events,” neighborhood events or seasonal festivals.

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3. Challenge: Growing without adequate staffing and infrastructure

When starting businesses, entrepreneurs often function as “jacks-of-all-trades,” doing whatever needs to be done to keep moving forward. However, as businesses grow, components like bookkeeping, hiring employees, creating and implementing training systems, and benefits management are critical tasks that can divert business owners’ focus away from growth.

Our advice:

  • As your business grows, focus your time on those things that drive growth and profitability, and, if feasible, hire support staff to handle the tasks that are essential to day-to-day operations.

  • Outsource a strong advisement team that includes, as needed, an outside attorney, a certified public accountant and human resources-management services. 

  • While hiring talented people can be costly, bringing on the wrong people can break a company. Be patient. Get the best employees that you can afford—and don’t forget that working capital financing is available to ease the financial impact of hiring staff and for long-term support.

  • Use available resources to help with training costs, such as local and state-sponsored workforce development offerings, and attend chamber of commerce and local events.

4. Challenge: Growing without effective cost controls

If you focus all of your time and energy on growing sales without paying attention to operating costs and profit margins, you’ll be chasing your tail. An audit of production and operating processes can identify waste or inefficiencies, and correcting those problems is one of the most effective ways to boost profitability and growth.

Our advice:

  • Have your accounting professional set up (or refine) your business’s online financial management programs (like QuickBooks), so that all costs are properly assigned.

  • Perform a review of all operational procedures and find inefficient, ineffective or otherwise wasteful steps and correct them. If necessary, have an outside consultant who specializes in process efficiencies help you with this.

  • Aim to get better deals from vendors through bulk purchases and prompt-payment discounts to further reduce costs. Ask vendors what term and rate discounts they have available.

  • Hold off on adding to overhead costs like expanding your offices or adding staff until you’re certain that growth is sustainable and not just cyclical blips.

5. Challenge: Growing without a financial forecast and adequate funding

It’s essential to prepare for financing well before you need it. Lack of planning can lead you to high-cost financing and result in missed opportunities, or even cause cash-flow issues due to high-interest debts with unreasonable and unmanageable repayment terms.

Our advice:

  • Learn what it takes to make your business “loan ready,” then be sure that your business and personal credit are in good shape.

  • Keep an updated cash-flow forecast and monitor actual-versus-budgeted performance. As your business changes, what worked three to six months ago may no longer be adequate. Identify your financing needs early on, too. These can include (but aren’t limited to) lines of credit and term loans for real estate, inventory, equipment and working capital, as well as loans to refinance high-interest debt.

  • Although most small businesses may not qualify for bank financing in the early years, it’s never too soon to develop a relationship with your business banker. Discuss different financing options that may be available based on your business’s needs and gain insight about what you need to do to obtain financing down the line. Then, try lenders that have loan options available specifically to support small business growth.

  • If your business does not qualify for traditional financing, look into alternative sources of funding, such as Small Business Administration-backed loan programs (like Community Advantage loans and SBA Microloans) and loans from non-profit, Community Development Financial Institutions (CDFIs), like Excelsior Growth Fund.

It’s never too soon to prepare for growth

Preparing for growth will ensure that you’re ready when challenges arise. You’ve got a solid (and updated) business plan that includes a focus on target markets and brand loyalty, you have the right people in the right jobs, you know your funding needs and you’re ready to move forward on the best financing options for your business.

With these steps in place, you’ve laid the foundation for success, and Excelsior Growth Fund can help you achieve the next level of growth. Contact us today.