For a business owner, the opportunity to grow his or her company is an exhilarating and sometimes precarious endeavor.
While most business owners are eager to advance to the next level of success, it's important to be tactful during the process. "Growth is always a good thing, but managed growth is how companies become great," said Bruce Ford, Senior vice president and Nevada regional banking manager at City National Bank.
Working with the right people, setting reasonable goals and creating a clear strategy can allow your business to successfully expand and thrive.
Can a business grow too quickly?
Rapid growth can become a pitfall for some businesses.
"One of the most common problems we see are disruptions in the cash flow cycle. During a rapid growth phase, businesses may find themselves spending cash more quickly than their accounts receivable can catch up," Ford said. "Usually, the best solution is a bank loan-it's why banks offer lines of credit-but it can be a frustrating predicament for business owners."
Issues with cash flow cycles also may be symptomatic of something larger: During times of rapid growth, some business owners can lose sight of their overall financial situation.
Businesses that maintain a smaller transactional volume are easier to manage than large corporations, and because of this, small-business owners generally have a clear understanding of their finances. However, as the business grows, the bookkeeping becomes far more complicated and usually requires professional assistance.
To avoid these problems, work with your banker, financial planner and/or accountant to create a reasonable growth strategy.
Financial professionals are well-suited to identify potential problems and opportunities because they can analyze a business objectively. Further, they'll be able to help monitor signs of overgrowth and work proactively to overcome them.
The old adage goes, "it takes money to make money," but this can present a quandary for ambitious business owners. As growth opportunities arise, many businesses don't have the immediate cash capital to invest-even if that investment would facilitate future success.
In these instances, it may be time to meet with your banker and start exploring your options.
Choosing the right bank
Personal banking and business banking are two substantially different enterprises, so it's vital that business owners do their research when choosing a bank.
"Some banks want to be all things to all people, and some banks have a niche. Look for a bank with expertise in business and experience with small-and middle-market companies," Ford said.
When choosing a bank for your business, start by assessing what you'll need. Are you looking for financial planning services? Ongoing credit counseling? Knowledgeable advice? Strategic planning? Once you know what you're looking for, start meeting with banks that offer those services.
Talk to the banker to find out what they'll be able to offer your business-and if those things align with your priorities. "You're entrusting your financial life to a banker, so they should be able to advise you about ways to enhance your business and offer insights based on their experiences," Ford said.
Before meeting with a bank
Prior to sitting down with a bank, take some time to prepare. "Be ready to present the vision: what you're trying to do, what you're currently doing and where you ultimately want to end up," Ford said.
Having that information ready can help ensure you're able to make an educated decision about the bank and banker, and gauge how well they'll be able to serve your specific needs.
What documents should I bring when meeting with a bank?
"The standard documents that you'll need are your tax returns from the past three years, your personal financial statement, your business financial statements and your balance sheets," Ford said. "However, it's important to be able to discuss those documents further and to explain the numbers."
How important is past credit history?
"Credit history is important-the past is usually the most accurate indicator of the future. However, bankers understand extenuating circumstances, especially in Nevada. We always try to customize business products," Ford said.
How to choose a bank
If you've found banks that offer the services you're looking for, you'll need to start zeroing in on a final decision.
It's important to be especially considerate with this choice during a growth phase, because finding the best bank now will mean that your banker is familiar with your company's needs going forward. Additionally, they'll be better able to find new opportunities for growth moving forward.
"The most important things to consider when deciding on a bank are experience and the ability to add value," Ford said. "The best banks will not only help manage, but enhance your growing company."
Note: Pricing is an important aspect when choosing a business bank. If you're only looking for basic account management, low-cost options may be the best bet. However, Ford notes that higher-priced services tend to yield higher value as well.