Growth finance: how flexible business finance funds progress

Is your business failing to grow despite your best efforts? Business growth can be difficult at the best of times, but in an environment of global uncertainty, rising inflation and slowing economies, even the world’s most successful companies are struggling to increase revenues. 

McKinsey & Company conducted a wide-reaching study of the growth and performance of the 5,000 largest public companies in the world over the past 15 years. The average revenue growth in the 10 years before COVID-19 was just 2.8% a year. Only one in eight businesses surveyed enjoyed a growth rate of more than 10% a year. The post-COVID-19 years haven’t been any easier.

Economic conditions aside, businesses also make common mistakes when trying to expand. Octet’s NSW Director of Working Capital Solutions, Dan Verdon, identifies a few factors that can hinder meaningful growth and, therefore, profits.

• A need for more strategic planning. “Businesses with a well-defined and communicated strategy, which aligns with their short-, medium- and long-term goals are much more likely to be successful.” 
• A need for more capital. “Most businesses underestimate the level of capital required for sustainable growth.” 
• A need for understanding where cash flow is tied up in the business. “There are four main cash flow levers: accounts payable, accounts receivable, inventory and their own cash. Understanding how to use each of those sources and when is really important.” 
• Scaling too quickly. “A lot of businesses might have a good product or a good service, but they grow too rapidly and then can’t sustain it.” 
• A need to acquire and retain talent. “Attracting and retaining good people, especially in highly skilled roles, is a major challenge for a lot of new businesses.”

For the best chance of success, it’s also important to identify where to concentrate your growth efforts. McKinsey & Company has discovered that businesses give themselves a much greater chance of outperforming when they invest in three pathways for growth:

• Expanding the core business by focusing on excellence in the areas in which they currently operate.
• Innovating in adjacent markets by seeking ways to adapt to serve new customers.
• Developing breakout businesses by identifying and exploiting new opportunities.

“Having a finance partner who can help you understand what levers to pull and unlock cashflow tied up in your business can help growth in all three areas,” says Dan. 

To fund their growth, many businesses set annual budgets based on previous yearly figures and use internal sources of funds, such as their profits or cash in the bank, rather than external financing, such as a loan or line of credit. However, this approach can affect profitability and hamper growth by leaving businesses without the financial flexibility to invest in innovation. While avoiding debt might seem preferable, if profits are down or cash flow slows (say, due to customers taking longer to pay their bills), a business’ ability to scale, innovate and compete effectively is seriously impacted. 

As we head into 2024, the economic challenges of high inflation, rising costs and a slowing global economy will continue to put a strain on business profits. Using finance to fund expansion makes sense. “Working capital facilities can support and encourage sustainable growth,” says Dan. “They are self-liquidating, so come with fewer risks than, say, a traditional fixed-term bank loan.”

So what are working capital finance solutions, how do they fund expansion and how can a financier such as Octet support business growth? 

• A streamlined working capital solution, such as Debtor Finance, (also known as invoice finance) allows businesses to access funds tied up in unpaid invoices to accelerate cash flow. By freeing up this cash, a business can capitalise on growth opportunities. This could include importing goods from new suppliers and exploring different product lines.
• Looking to expand into different regions? Octet can support your business through a Trade Finance facility. Dan explains: “Say the business is in Australia and wants to expand into another country, but they can’t get finance facilities in that country. With Octet’s facility, they can donate a portion (or all) of the limit to the overseas entity (subject to the Australian parent’s credit assessment) and then use that funding for their overseas business growth requirements.”
• An Octet Term Loan allows businesses to borrow up to $5 million, with flexible terms ranging from three months to three years, to unlock additional working capital to expand operations or acquire new assets.
• Octet can help your business with the process of onboarding new local or overseas suppliers. “We do the verification checks of those suppliers so the business knows they’re trading with someone who is legitimate.”
• Octet tailors our flexible funding solutions to a business’ needs. “We bring all the different working capital solutions – debtor finance, trade finance, credit cards – into one smart ecosystem.” 

Octet has a suite of fast, flexible finance solutions we can tailor to power your business growth. Speak with our team of working capital experts today to discover what’s possible for your business.