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Scaling is a crucial component of turning a thriving business into one that can generate profits and minimize losses. Scaling a business is no small feat, and for many growing companies, the financial burden can be overwhelming, often leading them to take on hefty, restrictive loans.
On the other hand, invoice factoring has proven to be a better option for these blooming upstarts. It eliminates the debts that traditional loans add to existing business expenses. More importantly, working with factoring companies creates a steady stream of cash that companies can rely on to make scaling successful.
While expansion is the goal of most businesses, the challenge for growing companies is sustaining that rapid growth. As they expand, there’s usually a gap between funding this rapid growth and sustaining operational costs. We’ll further explore how invoice factoring can alleviate these challenges, but it’s worth dissecting and understanding the specific challenges that budding enterprises face.
Scaling a business means you need more of everything. Production needs to increase. Inventory needs to grow. Service capacity needs to broaden to meet new customer demands.
It may be a good problem, but it’s a headache for business owners who don’t know how to make scaling affordable. The capital needed to fund this growth is often not readily available.
Ask anyone in accounts receivable about payment delays, and they’ll probably roll their eyes—it’s an all-too-familiar ordeal. It’s common for business staff to endure 30, 60, or even 90-day cycles of waiting for invoice settlements.
The problem here, of course, is inconsistent cash flow, which makes it challenging to cover operational expenses (i.e. rent, payroll), much less growth-related costs. Up to 82% of businesses fail for this reason.
Maintaining any business function during the growth stage is hard. However, three areas prove particularly challenging to sustain and can be detrimental if not properly managed: supply chain, staffing, and operational expenses—along with management, as mentioned earlier.
Supply management is one of the most prominent challenges in the growth stage of a business for various reasons. First, labor shortages can suddenly occur when newfound customer demand requires increased productivity, a greater volume of shipments, and a more extensive inventory. This is especially true for labor-intensive operations, such as warehousing and transportation.
Second, rising transportation and raw material costs, including those raised by inflation, can diminish a company’s profit margins. This may force a business to rely more on expensive shipping alternatives or expedite shipping to meet key deadlines.
Lastly, there’s the classic inventory management dilemma that companies face—overstocking to avoid disruptions but tying up capital, or understocking, leading to missed sales opportunities. This is a tricky situation because either decision can strain cash flow..
Maintaining and managing staff is another growth-stage challenge. Staffing problems can take different forms, often affecting a company in multiple ways.
Talent shortages can occur due to a competitive job market or skills gaps, which means insufficient workers to help facilitate your company’s growth. High turnover rates due to employee burnout can reduce the headcount in a growing organization. This hurts a growing company, because a shrinking workforce leaves key business functions and output unmanaged, which can lead to shrinking profits.
And lastly, there are recruitment bottlenecks, a topic that hardly needs an introduction. Selecting the right candidate(s) among hundreds or thousands of candidates is costly, without adequate funds to do so.
We’ll briefly reiterate this point—covering operational expenses is one of the biggest challenges in the growth stage of a business. During this phase, infrastructure upgrades may become necessary.
However, the costs of investing in new technology or equipment could make these upgrades tricky to execute and require an infusion of immediate cash flow. There’s also research and development (R&D) and marketing. Scaling a business often requires more investment in these departments, but the costs of product innovation and ad campaigns can become overwhelming.
Fortunately, invoice factoring can alleviate the challenges in the growth stage of a business cycle associated with scaling, especially for smaller businesses. It does this by leveraging the asset companies often struggle to resolve—unpaid invoices. The process goes like this:
This eliminates the cash flow problem businesses often have while waiting for customer payments. It also provides a source of funds that businesses can dedicate to sustaining growth.
Invoice factoring can counteract the costs of these growth challenges, but it must fit your growth strategy to make sense (and cents). Simply tacking an invoice factoring initiative on doesn’t cut it. Fortunately, there are several key steps to assess whether invoice factoring is the right fit for your needs.
Considering the challenges in the growth stage of a business, namely with costs, businesses should do their best to avoid excess debt. Adding extra debt in interest adds significant financial strain to a business.
Unfortunately, many companies do exactly that by applying for business loans. They work, but they’re often not suitable for small and medium-sized businesses looking for a more dynamic solution.
Invoice factoring offers a debt-free alternative that doesn’t require stellar credit scores for qualification. It expedites the wait times associated with customer payments, helping businesses secure the cash flow they need at the moment.
It’s also the only financing that grows with sales volume. Unlike traditional fixed loans, invoice factoring payouts grow as you generate more invoices. This makes it the most scalable financing option, naturally aligning with the growth of a business.
Ready to supercharge your scaling efforts with invoice factoring? Contact REV Capital to launch your debt-free growth strategy.
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