Financing Growth: When Strategy Meets Opportunity

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Businesses are like children: It’s exciting to see them grow, but each time there’s a growth spurt, it costs you money. Nonetheless, growth is the goal of any business. Properly managing that business growth, and the financing that makes it possible, is the most important job of any business owner.

“It’s all part of a normal business life cycle,” says Daniel Van, executive vice president for Business and Community Banking at Regions Bank. “Your company gets larger and more complex, and your financial needs change.”

An event such as an expansion or acquisition — in addition to what Van calls “organic growth”— is the most common reason for seeking additional business financing. Buying competitors, opening new locations, adding people or equipment, and becoming more vertically integrated by expanding into new but related lines of business all trigger additional financing needs. So do external factors, such as investing in new technology or fundamental changes in the way an industry does business.

“These trigger points are part of a company’s evolution,” says Mark Lange, managing director of the Institute for Exceptional Growth Companies and executive director of the Division of Entrepreneurship and Economic Development at the University of Wisconsin-Extension. “About 80 percent of the time, they are related to strategic issues.”

The key is keeping the CEO in the right mindset. “You need to move the CEO away from working in the business to working on the business,” says Lange. “Once the CEO aligns with the opportunities — more capital for expansion, more people, more production — things can fall into place, but you need to jog them out of their operational issues and into strategic thinking. You need to step in and help them see things differently.”

That’s often the role of your banking partner, who should already be taking a 360-degree look at your business. “Rapid-growth financing needs should never be a surprise,” says Van. “That means working together in advance at a solution. The banker and the client need to be on the same path to growth. It goes back to the whole idea of shared value. What’s good for the bank is also good for the client, because it means creating value in their communities.”

Business financing options for growth are numerous, including debt, private equity, and the capital markets, but the size of the company, its history, its projected speed of growth, and the amount of financing needed all help determine the best path to take. Your banker may recommend options such as secured working capital borrowed against real estate, equipment, inventory, or accounts receivable.

Fast-growing companies also now have greater access to equity-based capital. “A company making the right strategic jump has more financing opportunities than ever before,” says Lange. Still, he says, incremental growth over time is what builds companies that are successful in the long run. “If you don’t outgrow your cash, carefully pacing debt is usually your best option. But you have to establish a mindset of ‘What do I do next?’ You need to keep thinking about the next strategic move.”

What is the most common mistake with growth opportunities? “Missing them completely,” says Lange, “because you aren’t working on your company.”

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This information is general in nature, is provided for educational purposes only, and should not be interpreted as accounting, financial planning, investment, legal or tax advice or relied on for any decisions you may make. Regions encourages you to consult a professional for advice applicable to your specific situation.