Growth is great. Right? At New Growth Advisors we think it is. After all, the word “growth” is in our name. It’s what we do. But we also know that just because a business is growing quickly, it doesn’t necessarily mean it will thrive. Take for example ivy, one of nature’s fastest growing plants. It loves to climb up walls and attach itself firmly between the bricks. If the bricks are strong and well pointed it will become lush and hearty, enhancing the beauty of the building. If the mortar is soft and vulnerable however, it can get out of control, opening up cracks that loosen the structure and let water in, eventually destroying the entire edifice.
Bottom line: it pays to plan before you plant. Companies must have a solid foundation from which to grow. Case in point:
A worried business owner called the other day. “We made it through the downturn. We put in every penny we had. We borrowed on credit cards and asked our suppliers for extended terms, but now we can’t buy enough materials to supply the growing orders from our customers. Help!” Or what about the company that had to close its doors, seek bankruptcy protection and ultimately, was forced to sell to a competitor because it had too much business?
We’ve heard the horror stories and have seen it time and again… companies that fail due to unplanned or uncontrolled growth… companies that can’t afford to hire enough skilled and trained workers, or get enough raw materials and services necessary to serve growing customer demand. Every day companies run out of time and money due to economic downturns, relocation of jobs, off-shoring and outsourcing and management’s irresponsiveness to market changes and customer demands. It’s disheartening, but fortunately, it’s also avoidable!
As we come out of a lackluster economy our firm is getting more inquires from potential clients who have weathered the storm, who have worked hard to fund losses and raise money to pay employees. While they managed to increase productivity their capital has been depleted and now they can’t fund working capital needs to meet customers’ growing requirements, even as the economy continues its expansion. At NGA, we help business managers and owners prepare for the worst by creating contingency plans for downturns and economic dislocations, while building a strategy for the best. We show them how to plan for, but also finance future growth.
New Growth Advisors can create a plan to help manage your growth in a healthy and productive manner by helping you:
- Identity additional capital sources, such as equity capital or senior or mezzanine debt financing to buy inventory, meet payroll and ship products or provide services.
- Create a monthly forecast including a profit and loss statement, monthly cash flow and cash requirements
- Determine how much cash is needed to fund forecasted growth in inventory, accounts receivable, payroll and other operating costs
- Determine whether this cash canbe freed up internally by accelerating accounts receivable, increasing inventory turns, or extending payments to vendors;
- Consider working with owners to infuse the necessary equity to either fund these cash needs or be used to leverage the balance sheet with a banking partner, providing senior debt, or a mezzanine lender to provide subordinated debt funding.
- Seek a financial advisor’s assistance in creating these forecasts and determining the proper balance between equity and debt funding for your company.
Growth can be really great given a proactive approach that prepares for possible pitfalls, but plans for amazing success. Click here if you’d like to learn more about how NGA can help you create a winning strategy without the growing pains.