Contrary to popular belief, the most challenging time for entrepreneurs is not during the initial stages of starting a business, but rather during the process of scaling for growth.
A startup can often recover from initial mistakes, and the hard work of a dedicated few can make up for certain deficiencies; that said, once growth begins to accelerate, entrepreneurs are pressured to secure funding which can prove to be incredibly difficult without proper financial planning. This problem is especially true for startups and smaller companies who might have not done their due diligence when it comes to planning their financing for an expansion.
In this blog we will cover what scaling means and what parts of your business it affects most, when is the right time to scale, and the financing solutions that can help you scale as efficiently as possible.
What Does Scaling Mean Exactly?
Scaling a business refers to the process of converting it from a small entity to one that can viably compete in a larger market. When it comes to scaling, there are three primary areas of your business that are involved: product, marketing, and operations.
Product
Scaling a business requires more than simply increasing the production of your product; you need to do so in a manner that is efficient, cost-effective and predictable. To ensure scalability in this way, you must have established, repeatable processes in place that maximize productivity while maintaining the quality your customer base has come to expect.
Marketing
Creating a comprehensive sales and marketing strategy is integral to achieving the greatest possible reach as you grow within your market or expand into new ones. A smart infrastructure allows for more product visibility and higher profits, which is crucial as you invest more money into your company and as scaling increases your costs.
When it comes to marketing spend, a major pitfall is simply increasingly spending without an actual plan in mind. As your marketing spend increases, you should be not only monitoring the results but also regularly adjusting and expanding your strategy. Do not assume that simply spending more money on exactly the same thing will automatically yield proportional results at a higher scale.
Operations
Having a strong operational strategy, particularly as it pertains to your finance department, is essential for success when you are trying to scale up efficiently. You and/or your team should analyze and consider a variety of factors: everything from your operational costs, customer acquisition costs, your markup, actual customer demand, current processes and even your financial reporting. Factoring in all of these elements and more in order to help you decide what types of funding are most suited to your business and where the funds should be allocated.
Is it the Right Time To Scale Your Business?
Deciding when to scale up a startup or a small business can be a critical turning point. Scaling too early can result in cash flow issues and operational challenges, while scaling too late can result in missed opportunities and increased competition.
The right timing for scaling will depend on several factors, including your company’s financial stability, the strength of your product or service offering, and the level of market demand.
One of the key indicators of the right time to scale is when your company has achieved consistent and profitable growth. This shows that your product or service has been well received and that there is a sustainable demand for it. You should also have a strong financial foundation, with stable revenue streams, a positive cash flow, and enough reserves to support the increased expenses that come with scaling.
Finally, it’s important to assess the competitive landscape. If there is a large demand for the product or service and there is room for growth, it may be the right time to scale up. However, if the market is becoming crowded and competitive, it may be wise to wait or consider alternative strategies.
Funding Options For Scaling Up
Here are the main funding options the finance function of your company should consider when it comes to raising money to scale your business.
Venture Capitalist
Venture capitalist (VC) funding can be a valuable source of investment for scaling up a small business. VCs provide not only financial support but also business expertise and industry connections. However, it’s important to note that VC funding often comes with expectations of high returns and potentially significant ownership stakes in the company. It’s important to carefully evaluate whether this type of funding aligns with your business goals and company culture before pursuing it as an option.
Angel Investors
Angel investors can be a great way to fund growth. These individual investors are typically high net worth individuals who are looking to invest in promising startups and emerging businesses. Angel investors can provide funding, advice, and valuable industry connections to help your business grow. Unlike venture capitalists, they often invest smaller amounts and are more flexible with the terms of their investment; yet much like VCs, angel investors often expect ownership stake in your company and significant returns in exchange for their investment.
Grants and Subsidies
The Government of Canada offers a variety of grants and subsidies to support small business growth and development. These programs provide financial assistance to businesses that meet certain eligibility criteria, such as creating jobs, developing new technologies, or contributing to economic growth. But while these grants and subsidies can provide valuable financial support, the application process can be time-consuming and competitive.
Business Line of Credit
A line of credit for small businesses can be a flexible and useful option for funding a scale up. It provides access to a set amount of funds that can be drawn upon as needed, typically with lower interest rates than credit cards. Another advantage is that you are only required to pay interest on the amount you have used, which can be particularly useful for businesses that need to manage cash flow fluctuations or invest in short-term growth.
With Merchant Growth, you can get access to a business line of credit in as little as 24 hours, therefore allowing you to quickly put your scale up business plan to action and seize growth opportunities as they present themselves.
Fixed Financing
Companies looking to scale up should also carefully consider a fixed financing solution. Fixed financing can be a predictable and reliable solution for funding the growth of a small business, as it offers a stable interest rate and set repayment terms. The stability of fixed financing allows your finance teams to produce accurate financial data and projections so that you can more clearly map out your scale up business strategy.
Merchant Growth offers fixed financing with minimal eligibility requirements, which is an important consideration for businesses that are just starting to gain their footing in the marketplace.
Merchant Growth Can Help Take Your Business to the Next Level
Scaling is a watershed moment for many small companies, as the quality of their decisions during this phase often dictates their future. It is therefore important to ensure your business is ready to scale and that you choose the right funding option. With simple and tailored financing solutions, Merchant Growth can help you access the funds your business needs to scale up in a way that is both stable and flexible.
For more information on our diverse financing options, contact us to be connected with a dedicated financing advisor. We’re prepared to offer you the most user-friendly and convenient financing experience available as we provide your business with the assistance it needs.
