BUILD YOUR BUSINESS WITH ORGANIC FUNDING

By now you’ve likely received advice (more than once) to take advantage of investor dollars and round up as much capital as possible to fund the growth of your small business. Our advice is a little different.

Instead of giving away stake in your business by accepting investor dollars, try building your business organically for a stronger return in the long run.

While the process of selling your business may be a completely different conversation, here we’ll focus specifically on funding the growth of your small business, not an exit plan.

Organic growth means that instead of growing business through mergers and acquisitions, bootstrapping efforts to focus on business expansion via increasing output and enhancing sales internally.

Now before we scare you away, hear us out. Here as the dos and don’ts of growing a business organically.

DO

• Talk to your bank about the resources available to you as a small business

At this point you should rely heavily on the stakeholders in your business. Your vendors, customers, employees, the bank, and even the government have pull here. Consider how you can leverage those relationships to aid your growth.

Think about alternative strategies such as SBA, Mezzanine Financing, borrowing money from investors (rather than giving up stake in the business), or vendor financing.

• Utilize your vendor and/or client relationships to grow

Focus on monitoring and using your vendors and customers to manage receivables and payables. Try providing incentives for your customers to pay their invoices sooner.For example, offering a 10% discount if they pay in 30 days, rather than the typical 90 days. Providing incentives can get dollars in your pocket now.

• Rethink labor costs

Right now you should be thinking about labor costs and how those affect your cash flow, profits, and revenue. One of the biggest expenses for businesses is labor. But as an emerging business, you need to be strategic in your spending. In later stages of business, it’s almost always better to pay your people a high enough wage that they don’t consider going across the street for a few more dollars. But at this point in business you likely cannot afford to do that. Instead, put incentive based compensation in place (for now) and tie those to metrics with intended consequences.

Ex. every quarter pay a bonus to your employees tied to incentives that generate positive cash flow. This will make their annual wages competitive, but instead of giving those dollars outright, tie the bonus to a money making activity (growth, revenue, profit, cash flow) so those dollars aid your business growth. The key here is to find a way to pay your people enough, but not so much that your payroll puts you out of business. Don’t go at it alone. Enter your email address below to take a deeper dive into funding business growth with a Gerber team member.

DON’T

• Give up your decision making power by accepting investor dollars

People who write checks often times do not have the business background you (as a small business owner) need to effectively grow. While they may be an experienced business executive, they likely do not understand the complexities of operating as a small business and the cash flow constraints that go along with it.

The approach of an investor with no entrepreneurial experience can negatively impact your business simply due to their lack of industry knowledge.

• Waste time researching and identifying investment dollars

Your time at this point is better spent on operations and growing your market share! Getting distracted by nailing down dollars will only stall your growth plans.

Consider the cost (in terms of your time; reallocating focus) of getting an investor versus the amount of capital you may actually receive.

Beyond identifying the funds, you then have the responsibility of ongoing communications with said investor. This can kill your focus and distract you from your main goals.

Now, don’t mistake the advice to consider organic funding before taking investor dollars as an absolute. When pursuing a business valuation when you are scaling or risk mitigation and/ or diversification, taking on investor dollars could make sense! However, there are still poor reasons to do an equity raise – such as survival, key hires, or lack of planning.

Rethink your growth strategy to grow organically.