Congratulations, you have just completed putting together your growth plan! You have identified the necessary services, tactics, and assets necessary to achieve your target growth. Armed with projections showing revenue growth, expenses, and how much you need to finance the growth, you are ready to go to the bank. The only problem? Your projections are no more than a guess written on a fancy piece of paper. You know this and the bank knows this, so how can you demonstrate confidence in your plans?
What if there was a way to confirm, or at least shore up, the amount needed to finance the growth? After all, one of the worst things to happen is for a business needing to return to the bank twice or even three times because the estimated amount of funding needed was wrong. Good news! There is an easy process. It starts with what are called common size financial statements. These are your current financial statements restated as a percentage. Applying a twist to how your common size financial statements are restated, you can calculate your growth gap.
For example, Joselyn’s construction company just came off what she would consider one of her best years. At the time, the construction industry was in a 7% slump, her business achieved just over a 5% year over year growth. She was now in the process of taking advantage of the business’s strength in the market to achieve further growth. If Joselyn knew how much capacity she needed in equipment and staffing to achieve her growth, she could calculate how much extra cash she would need to borrow to achieve the growth. However, her experience told her that projections didn’t always identify the amount needed. We showed her how to calculate her growth gap and develop a plan to achieve her growth plan. Armed with the plan, complete with cash flow management, and her growth gap, she was able to get the needed bank financing. Not only was she able to get the loan, but the loan was processed faster than she had ever experienced before. Instead of a couple of months, it was a couple of weeks. She was told it was because she walked in with a growth plan showing her cash flow management plan and the calculation determining her growth gap.
In conclusion, by restating your balance as a percentage of sales, you can identify your growth gap. This is the amount of financing the business will need to achieve the target growth rate based on your past financial performance and standing. Even though Joselyn was able to achieve her desired results, there is no guarantee that following this advice will result in securing financing or achieving your growth plan.