Capital For Expansion

Every organization goes through different stages. In earlier stages, it is about getting settled and growth. Growth is the focus in earlier stages because you want to have sizable market share. When you are in growth mode, there is constant need for capital. Unless, it is like a consumer business where you get money as soon as you sell your goods. This is where good business models come into picture. It is a different picture altogether when growth is common but cash flow is different. When there is a credit involvement of customer, you are stretched to the hilt. More so, if you are having more growth. This is because you may not get enough credit from the supplier, but you have to give credit to the new customers. Whenever new customers come, it is very tough for the first 2-3 months. This is because you are just supplying them material without getting the cash. Revenues are generated but are not in hand. That makes the cash flow a little difficult. So much so, that you might be at your wits end, if you have more than a couple of such big customers. 

But once that period ends, there is a constant flow of fund. We can call it a stead state. In steady state, you are giving material, while you receive payment albeit for material given a couple of months ago. When going for expansion, always remember that you have to have cash flow such that your cycle does not get stopped. Capital requirement is a healthy sign when it comes with the growth because, this requirement is short term if supported well with growth in revenues. When you have to give credit to customers, you should always foresee your cash flow before adding the customers. Foreseeing the cash flow will make you to take a decision of either slowing down or to arrange for a bridge loan or a short term cash loan. It is always better to raise debt rather than losing equity, since it is assumed that the debt is a cheaper form of finance. 

You can also work out with your suppliers to increase the credit period since your requirement increases. This will make you more resilient to decreased cash flow, as your cash out will be delayed a bit.