Growing or Mature Businesses

April 13, 2006

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A growing or mature business usually has sufficient stability in its operations so that cash flow problems are not a constant crisis. If the business is successful, internally generated funds from sales and investments can fund many of the business's needs.

Typically, growing and mature businesses have more financing options available to them because of their operating history, established value, credit history, and availability of inventory and accounts receivable financing. In addition, the advantages of having established customers and suppliers, efficient internal operating procedures, more sophisticated marketing and advertising, realistic long-term business plans, and the company's emerging goodwill help improve the creditworthiness and investor appeal of the business.

Debt financing becomes increasingly available to a business as its track record supports creditworthiness. If the business has been profitable, debt financing is generally the preferred form of raising new capital for existing businesses.

Nonetheless, a growing business may be stifled by inadequate capital for expansion that stems from the reluctance of an entrepreneur to dilute his or her ownership through equity financing. Sometimes the decision simply comes down to whether you want a profitable, growing business in which you share control or will cash out your interest at a given time, or whether you own a business that fails because you could not raise sufficient capital for the business to grow. Growing businesses can consider raising equity capital through private transfers of ownership interests, by using venture capital firms, or by selling ownership interests through formal limited private offerings or an initial public offering.

Dangers to the financial health of a growing business are often attributable to the business overextending itself or to poor decision-making. If you rush expansion or acquisitions, purchase too many expensive fixed assets, or form unwise associations with other businesses, you may find yourself throwing good money after bad money. Even very "street-wise" entrepreneurs may be better served by engaging professionals to assist in legal and business matters, and by employing experienced management to handle the growing complexities of the daily operations.