To expand a business, the owner must have enough funding for new capital and the increase in operating costs to sustain the venture. It can be challenging to find the money for growth, with some entrepreneurs looking toward forms of credit or loans as a fiscal source. Whether the funds will be used for financing purchase orders, a new physical store, or customer acquisition, these entrepreneurs know that they will not be able to meet these goals without the right financier.
However, it is risky for a company to seek loans for expansion, even if they feel like they are doing well. Furthermore, it is a bad sign for investors to find any venture in debt before they even walk in unless they provide the line of credit themselves because it incentivizes them to get a return on that investment. Otherwise, this is a red flag that indicates poor financial management on behalf of the business owner seeking a backer.
Fortunately, there are alternative sources of financing to loans. A business should be able to pay for itself. Although there are good and bad debts, no debt is the best way to go. So long as there is sufficient cash flow and the chief financial officer in the company can find ways to optimize the accounts, responsibilities such as getting tax refunds, holding on to retained profit, and diluting shares should not be a problem.
Tax Refunds
A business can expect a tax refund when they pay more than they are supposed to. Since different tax forms are withheld by a company, like income tax and social security, it can expect a return on what they filed. The excess in the levy paid can be due to an employee settling it when they do their taxes.
At the same time, if the firm happens to find itself in an audit, and the chief financial officer disagrees with the result, they can always hire IRS appeal services to sort out the situation. It might be due to different interpretations of specific codes or how another may overrank a rule. Another possibility is that the auditor might have overlooked or misunderstood some invoices. Whatever the reason, the most important thing to do is to request a re-checking of the auditor’s conclusion.
Tax refunds can either be very little or significant enough to help push the company’s finances toward expansion. All that matters is that you get your money back. If it happens to be enough to be flushed into the growth of a business, taking out a loan will no longer be a priority source of funding.
Retained Profit
Most companies design their financial stability with the goal of self-sustenance. It no longer looks toward debts to pay for its purchase orders or new capital. When a business floats some of its profit back for the next fiscal year, it is called retained profit. Entrepreneurs can decide on a percentage of the profit they will reinvest. Some companies might even consider it an expense to ensure that a portion of the earnings will be returned to the business as the new capital.
As a result, business owners are less likely to seek credits or loans for any form of expansion. They will be able to finance themselves. Furthermore, in the event of unexpected losses, the company will still have something to work with in the future. Businesses need to build this kind of fiscal resiliency through retained profit if they want to improve their chances of surviving the market.
Diluting Shares
One of the most common reasons business owners use in the show “Shark Tank” is that they require money to expand and, therefore, need investors. They might not apply for loans or get out of the debts they have arranged. Instead, they look for another source of finance through their shares. Diluting the stake in the company might lead to changes in the decisions made for the business. But the important thing is that the business owners do not have any debt to service, encouraging more investors to work with those entrepreneurs.
As you can see, there are at least three ways to go about an expansion without incurring debt. It is up to the business owner to weigh the impact of loans. Once they understand that, they can adequately strategize their finances. Doing so ensures that there will be enough money to service what they owe and pay for any purchase orders and the operating costs that come their way.
