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Growth Capital: What Is It & Why Does Your Business Need It?

So you’ve set up a business, or are thinking about it. Great! You’ve considered the time and commitment it requires, but have you thought about the financial investment necessary?

Many businesses appear, on the outside, to be doing well for themselves but if they haven’t managed their finances to allow for Growth Capital then it’s doomed to stagnation. Working Capital will pay your bills and cover costs but it doesn’t leave anything in the pot to expand or develop your business.

Whether your business is still an idea in the wind or you’ve been at it for years, you need to have a firm grasp on the financial implications of decisions you make.  Understanding the difference between working capital and growth capital limits the possibilities of underinvesting in opportunities or putting your daily operations at risk.

Basically, you need to know what you’re doing with your cash. When you can use it and when you should be squirrelling it away for bigger things.

What is Growth Capital?

Just like your beloved piggy bank collected your coins, storing them for the perfect childhood investment, your Growth capital provides a healthy nest egg to turn to when presented with expansion or investment opportunity.

Whilst working capital pays for bills and basic, cyclical expenses, growth capital is more like a long-term health insurance plan for the business. It’s not tied to any particular business expense and has the chance to build up over time, affording you greater investment in greater opportunities.

Major changes such as expansion, adding another location, adding or repairing critical equipment or a merger with another company are expensive but involve non-recurringcosts. Growth capital would pay for these costs, leaving your working capital to continue meeting the daily recurring needs of the business.

Why Is It Important?

That’s all great to know, but you’re not thinking about expansion yet. It’s too soon for that, I hear you say.

It’s never too soon to consider the long-term prospects of your business and start preparing for them.

When bringing your business ideas to fruition, you had a goal in mind. That goal was never to end up losing customers,  closing down or seeking bankruptcy. Without a growth capital funds to pull from, these are all possibilities.

Poor financial planning can be profoundly damaging to a small business so it’s important to set yourself up for long term success, right from the beginning.

Once you have that sorted, you are in line to be able to expand and compete. This translates into a greater cash flow through your business and therefore greater funds to reinvest.

Investing In Your Company’s Growth

Now that your company is making money, what do you do with it?

You can support the long-term success of your business by reinvesting the capital in the company. This is how growth capital is born. Capital is stored away, earning interest and growing your funds.

It’s essential to the development of your business that your growth capital is stored separately from your working capital so that it cannot easily be depleted

How Does Growth Capital Help Your Business?

In a nutshell, growth capital gets your business to the end goal.

Your working capital keeps your business ticking, but the big wins and long-term success comefrom sound financial decisions that allow growth capital to build up and used wisely.

Like any ambitious business owner, you may consider expanding to increase your customer base and profitability.  It’s important to time this right as expanding too fast can deplete all of your growth capital at once, leaving your business in a vulnerable position.

Having a reserve of funds allows your business to progress to the next level without having to worry about whether or not it will be able to recover from the spend.

Avoiding cash-poor positions or burning through the entirety of your growth capital is paramount to your business success.  Expansion and increased profit margins are strongest when built up at a slower, more sustainable rate.

Does your business need extra growth capital for expansions or improvements? Bizfund can find funding solutions for you.