The Ultimate Guide to Business Financial Growth

Section 1: Keys for starting or growing your business

In this section, you’ll learn what you need to start or grow your business. There’s plenty to cover, so let’s get started!

1. Organize your financials

Regardless of the size or stage of your business, applying for business funding requires you to get serious about organizing your finances. 

Lenders want to see everything related to your personal finances, personal credit score, business finances, and business credit score.

Here are a few tips to help keep your financials in order so you’re prepared to apply for funding:

Protect yourself (and your business)

Depending on the size and structure of your business, an LLC or an S-Corp may be beneficial. While sole proprietorships are simpler, LLCs and S-Corps provide protection by keeping your business finances separate from your personal ones. 

If you’re sure which structure is right for your business, consider consulting a certified public accountant (CPA) or business attorney who can help advise you on the best options for your business.

Digitize your financial management

Create a repeatable, manageable digital system for organizing business paperwork, so you’re ready for situations like applying for a loan. 

Start by scanning existing documents into categorized folders on your computer. Then, switch to paperless billing, invoicing, and tax filing, so you’ll have digital files you can access easily. 

To do this effectively:

• Protect your digital files with a third-party secure service and password protection
• Shred hard copy documents after saving them digitally
• Know what personal information is on your computer and in your files
• Gather key documents, including:
  • Bank, tax, accounting, and employee records
  • Contracts, leases, and purchase agreements
  • Permits, licenses, patents, and trademarks
  • Business filings

For more information on how to best protect your personal and business information, visit the Federal Trade Commission website.

Track and audit expenses

Regularly tracking your expenses helps ensure your finances are in order and bills are paid on time. It also helps your tax preparation, because you’ll be able to deduct certain business expenses to lower your taxable income. 

There are plenty of online tools available to help track your small business expenses. For example, Freshbooks, has monthly subscription plans that offer expense tracking features, including a place to digitally “store” receipts.  

Get a business bank account

It’s important to separate your business and personal finances as soon as your business starts making money. Even if you’re just starting out, having separate bank accounts simplifies your accounting, protects your personal assets, and improves your financial management.

If you don’t have an employment identification number (EIN), you’ll need to either apply for one through the IRS or open a second personal bank account for your business finances.

Use automation to your advantage

Still keeping a paper ledger for your business? More and more business owners are using software programs to minimize the likelihood of errors. 

By using QuickBooks or another bookkeeping software, you can automate financial tasks like invoicing, paying bills, payroll, tax documents, inventory, and more. While errors can still happen, it’s less likely to occur with an automated program. 

Establish and manage your credit profile

Lenders use your credit history to determine if you will be able to repay debts. Poor credit can lead to a loan denial or unfavorable interest rates that increase your loan cost.

Many lenders rely on your personal credit score, including factors like payment history, length of credit history, credit utilization, credit types, new accounts, and credit inquiries.

It’s a good idea to regularly request a free copy of your credit report to review it for errors and take immediate action if an error or discrepancy is found.

Lenders may also review your business credit score. To establish your business credit:

1. Incorporate your business – consult with your attorney or trusted advisor to determine the best entity.
2. Get an federal employment identification number (EIN), which acts as a Social Security number for your business.
3. Open a business bank account.
4. Apply for business trade credit (business credit cards and credit from delivery or office supply companies) so you can buy goods or services and pay at a later time. Early approval may depend on your credit score, and suppliers may initially require a new customer to pay cash on delivery (COD).
5. Pay your bills promptly – payments are reported to business credit agencies and will impact your PAYDEX score.

2. Create business, marketing, and branding plans

Creating a business plan, as well as plans for marketing and branding, is not only good practice for securing capital, but for growing a successful business. 

To get started, ask yourself:

• What is your business model?
• Who are your competitors?
• How will you position your business to gain a competitive advantage?
• Who are your ideal customers?
• How will you reach your audience?
• What marketing tactics will you use to get customers?

Once you’ve answered these basic questions, you can create a business plan or update an existing one. 

What should your business plan include?

A business plan is an essential tool for growing your business. It’s used to communicate your business goals and strategy to stakeholders, partners, and investors. A comprehensive business plan should include:

• Executive Summary
• Industry and Competition
• Organization and Management
• Company Description
• Marketing and Sales
• Financials
• Target Customers

3. Hire a team of competent professionals

Even if you aren’t in the position to hire in-house employees, you’ll still need to surround yourself with a reliable team of professionals. Every business, regardless of size or structure, will need:

• Accountant
• Lawyer
• Banker
• Bookkeeper

While you may not need this help all the time, it’s important to find trusted experts you can lean on for support when you need it. 

Aside from hiring actual employees, you can benefit greatly from the help of mentors, business coaches, and business development professionals. More established businesses, especially S- or C-Corps, may need to appoint a board of directors or business advisors.

4. Understand the funding process

Once you have a plan for the future and the right team to support you, you may consider funding to fuel your business’s growth. Before applying, you’ll need to prepare and understand what lenders look for:

• Be prepared: Make sure you business plan is up-to-date and your financials are organized for lender review.
• Know your industry and competitors: Understand your business operations, cycles, competition, and industry trends, as well as how you’ll stay competitive.
• Understand your financials: Ensure your numbers and story that you present to lenders match what’s reported on your tax returns.
• Prepare for your loan interview: Review your application materials so you can confidently speak to your business, industry knowledge, and organization.
• Determine your loan purpose and amount: Know exactly how much funding you need, what it’s for, and why the amount you requested for is sufficient.
• Complete the loan application fully and accurately: Incomplete or inaccurate applicationa raise a red flag to most lenders. Be sure to review the application multiple times, double-check every detail, and provide thorough, accurate answers.

Section 2: Strategies for business growth

Now that you understand the essential keys to growing your business, let’s look at what’s needed to successfully run your business, as well as strategies to take it to the next level.

1. Working Capital

Working capital is the difference between a business’s current assets (cash, accounts receivable, and inventory) and its current liabilities (accounts payable and short-term debt).

Your business’s working capital is a direct measure of your operational efficiency, liquidity, and short-term financial health. Positive working capital demonstrates a strong potential for growth and investment. If your current business assets don’t exceed current liabilities, this can lead to a lack of growth and difficulty repaying loans.

How to calculate working capital needs to start or grow your business

Estimate your working capital needs by understanding your working capital cycle (turnover rate) – how money flows through your business, including how quickly assets are turned into cash and how quickly that cash is used to pay current liabilities. To accurately calculate how much working capital is needed to start your business, you’ll need to know:

• How many days of inventory do you need to keep on hand?
• How many days will you give customers to pay you (accounts receivable terms)?
• How many days will your vendors give you to pay them (accounts payable terms)?

However, for business growth, you also need to understand how much money you need to accomplish your goals. For example, you’ll need to create financial projections for working capital, accounts receivable, and accounts payable, as well as changes in inventory.

2. Refinancing debt

When growth and expansion are on the horizon for your small business, refinancing existing debt can be a great way to free up cash flow to invest back in the business. 

How and why should you refinance debt?

There are many reasons why you may want to refinance debt, especially if your existing loan is expensive or risky, or if your situation has improved since you borrowed money. When done right, refinancing can lower your annual percentage rate (APR) and monthly payment, improve cash flow, and more. 

What do lenders look for a refinance?

Like any other loan, lenders will need to see financial documents to determine if your business is eligible for refinancing existing debt. Before meeting with a lender, ensure you have these documents on hand and prepared:

• Corporate tax returns from the past three years
• Personal tax returns from the past three years
• Interim profit and loss statement
• Interim balance sheet statement

After receiving your financials, lenders will calculate your business’ earnings (net income or less) before interest, depreciation, and amortization (EBIDA), so they can determine whether your business can make monthly loan payments. A

Lenders will also analyze the debt service coverage ratio (DSCR), so they can see how much cash your business needs to make the yearly interest and principal payments on the loan.

3. Purchasing equipment and machinery

To keep up with growth and operational efficiency, you may need to purchase new equipment or machinery for your business. Before you do, you’ll need to conduct research to have a thorough understanding of your equipment needs. 

Matching your use of funds to the term of the loan 

Before taking out a loan to purchase equipment or machinery, you’ll need to know the cost and useful life. This will help determine if you need a term loan or a line of credit for your machinery purchase. Here are a few pros and cons of each:

• Line of credit (LOC): A business line of credit is similar to a credit card or home equity lines of credit. Once approved, you’ll have access to a certain amount of financing, but you’ll only make payments or incur interest when you use the money.
  • Pros: Lower interest rate and closing costs
  • Cons: Interest rates will go up substantially if payments are late or missed

• Term loan: Ranging from one year to 20, term loans provide a lump sum of money all at once, with the expectation that the money be paid back over a specific period, plus interest. Term loans follow a fixed amortization schedule and are typically secured.
  • Pros: Flexible repayment periods available with fixed interest rates
  • Cons: Repayment must begin immediately after receiving funds. Closing costs and interest rates are higher.

Do your research on the machinery or equipment you’re purchasing to ensure the financing you use for it makes sense.

4. Purchasing real estate

When done at the right time with the proper funding, purchasing a location for your business can help fuel growth and open more doors to opportunity. Determining whether buying real estate is the right choice involves analyzing your financials and your overall situation. Here are some key points to help guide your commercial real estate decision:

• Benefits of buying: There are clear advantages to owning a building for your business, including building equity, stabilizing occupancy costs, preserving cash, and tax savings. 
• Benefits of leasing: Some business owners opt to lease instead of buy because of the flexibility to relocate, fewer maintenance responsibilities, negotiable rates, simpler income tax paperwork, no down payment required, and freeing up cash without having a mortgage payment.
• Enlist the experts: If you decide to buy a property for your business, it’s important to have the right people on-hand to help you through the process. You’ll need attorneys, CPAs, bookkeepers, business development experts, and lenders.

5. Buying a business or franchise

Whether you’re looking to expand your current business or launch a new one entirely, buying an existing business or franchise might be a good option. Before you decide, it’s important to understand all aspects of the deal and whether it’s the right move at the right time.

What experts can you turn to when buying a business?

For starters, a business broker can help you find attractive businesses for sale and walk you through the acquisition process. Like real estate agents, business brokers typically charge a commission between five and ten percent of the purchase price. Be sure to find a broker you’re comfortable with and trust.

Once you find a business you want to purchase, you’ll need an attorney, accountant, and an independent business valuation firm to determine the health of the business.    

What should you look for in a business before moving forward with an acquisition?

Buying an existing business can be a great way to start making money sooner than you would launching one from scratch. But there are certain things you’ll need to consider before moving forward. 

• Get a certified valuation from a valuator with the National Association of Certified Valuators and Analysts (NACVA) designation.
• Have a professional business accountant review the business’s financials to confirm – past mistakes that go unnoticed become your responsibility.
• Collect and file required paperwork, including a letter of intent (LOI), which states the final purchase price, assets included in the sale, and any other conditions.
• Analyze the business’s current contracts and leases with landlords and suppliers to understand obligations and spot risks, such as an over-reliance on one supplier.
• Consider non-financial factors before purchasing an existing business, especially the industry outlook and business reputation.

Considerations for buying a franchise

Another common path to owning a business is to purchase a franchise. While there’s a long list of pros and cons,, here are a few fees you can expect to pay if you choose to buy a franchise:

• Initial franchise fee: Covering the franchise license, plus the franchisor training and launch support. This can range between $30,000-$50,000.
• Set-up fee: This is also a one-time cost, and covers the expense of getting the business up and running such as buying equipment and renting out physical space.
• Royalty fee: This fee typically falls in the 6-8% range, and pays for the franchisor’s ongoing support. 

Like any investment, do your due diligence. Speak with others who have purchased franchises, and request the franchise disclosure documents (FDDs) through the Federal Trade Commission to get more insight into how the business works and what to expect.

Section 3: Loan options for growing your business

Now that you’ve covered keys for growing and financing your business, let’s take a brief look at the most common loan options available to business owners in the United States. 

1. Traditional bank financing

Qualifying for a bank business loan can be a complex process. Banks typically need at least three years of continued profit, and require your business to be structured as an LLC, LLP, S-Corp or C-Corp. Traditional bank financing also tends to have tighter qualification standards than non-traditional funding options. 

2. SBA loans

The SBA loan program provides greater access to capital to businesses to help them start, grow, and succeed. Backed by the U.S. government, SBA loans are available to businesses of all shapes and sizes. Here are some of the most common SBA loans:

• The SBA 504 loan program offers long-term, fixed-rate financing up to $5.5 million for major fixed assets, including owner-occupied  commercial real eastate and heavy equipment, as well as refinancing debt incurred for these purchases.
• The SBA 7(a) loan program is one of the most popular loan options from the SBA, and it offers variable interest rate financing up to $5 million, with terms up to 25 years for equipment and real state, and 10 years for general funding.
• The SBA Microloan program provides funding up to $50,000 for nearly any business need and industry, including working capital, inventory, equipment and technology, and more.

There are several benefits of taking out an SBA loan, including affordable terms, counseling and education, lower down payments, and more. 

3. Online loans

There are multiple options available for online business loans. Online lenders can be more flexible for those who are unable to qualify for traditional financing, offer an easier application process, and have faster processing times.  

While online lenders offer convenience, it’s important to do your research before applying. Be sure that the loan terms, prices, fees, and payment terms are made clear by the lender. Ask questions about how payments will be made and how often to ensure there are no unexpected or unnecessary obstacles to payment as well. 

4. Line of credit (LOC)

If your business needs ample cash flow, applying for a business line of credit may be your best funding option. Similar to a credit card, a LOC gives your business with a set amount of available funds that can be taken out and used when needed. There are two types:

• A revolving line of credit allows you to spend up to the credit limit and will not expire or close when funds go unused. 
• A non-revolving line of credit provides a lump-sum amount all at once. When it’s paid off, the line closes. Unlike a term loan, a non-revolving line of credit offers lower financing amounts, flexible payment terms, and a higher interest rate.

Regardless of revolving or non-revolving, lines of credit may be secured (requires collateral) or unsecured (no collateral required). Lines of credit can help you even out cash flow, allow you to pay for only what you use, take advantage of time-sensitive business opportunities that may arise, and builds your business credit history

While there are plenty of benefits, there are potential downsides to taking out a business line of credit like higher qualification requirements and low borrowing limits. Be sure to analyze your funding needs and decide if a LOC is right for your business. 

5. Private investors

Another avenue for funding your small business growth is to seek funding from private investors. While it has its limitations, there are plenty of benefits to choosing this route:

• Potential membership opportunities
• Requirements aren’t as strict
• They are willing to take on more risk than traditional lenders

However, bringing on a private investor is not the same as taking out a loan, as you’ll be sharing a percentage of your profits with the investor.

6. Crowdfunding

Crowdfunding is a newer option that involves multiple investors lending small amounts of their money to a business or project. Businesses can use crowdfunding to raise money in exchange for equity in the business or future repayment. You can explore crowdfunding opportunities through various online platforms.

While crowdfunding can be a great way to fund your business venture and grow your audience, do your research before moving forward.

Pursuit can support your business growth

With these financial and growth strategies, you’ll be on your way towards a strong foundation for you to launch, grow, and sustain your business. By understanding the keys to growing your business, how to finance your growth, and loan options available to fund it—you’ll be well prepared for the journey of business ownership.

If you need funding to start or grow, Pursuit can help! We offer more than 15 loans and a line of credit tailored to small businesses in New York, New Jersey, Pennsylvania, Connecticut, Illinois, and Delaware.

Reach out to us today to learn more about the ways we can help.