And why it matters.
Close your eyes for a minute, and ask yourself what is your top-line revenue and bottom-line EBITDA goal for your business three years from now. Then jot your numbers on a piece of paper, and compare them to your results over the past twelve months. What are your growth targets by percentage?
The most important thing about this question is that there is genuinely no “right” answer. How much risk you want to take, and how quickly you want to grow and expand is a deeply personal one. But if you can find your “comfort zone” and be content with it, you can plan accordingly and make the financing decisions that are right for you.
If your goal is exponential growth, (let’s say 100 percent or more per year) you should probably seriously consider equity or venture financing. In most instances, these are the financing mechanisms that work the best for hyper growth.
If you are very conservative, and are content with less than 5 percent growth per year, you may well be able to growth through cash flow and don’t have to worry about lenders or investors. Your conservative choices will avoid a myriad of headaches that you don’t need to concern yourself with.
Most entrepreneur’s I know fit somewhere in the middle. They want to move their business up the ladder steadily and with a good rhythm, without risking falling off along the way.
If you’re one of these entrepreneur’s you can likely use debt to grow your business, and you will need it along the way to preserve cash and keep moving forward.
For these companies, a debt plan is very important. You need to pick your capital investments you are going to make each year, and look at long term options to finance them. And you should make sure you have a line of credit in place or possibly an asset based line if you have accounts receivable and or inventory to give your business the fuel it needs to grow. You can also likely avoid investors and retain control of your company.
How quickly do you want to grow your business? If you decide now, you can make the right choices to push you forward. If you don’t decide, or keep changing your mind you might risk falling off the ladder as you go.