How business leaders can strengthen their balance sheet without slowing growth

 

The path to company growth is becoming more difficult to navigate — even for business leaders fueled by ambition. Across the United States, owners face an uncertain economic outlook amid rising input costs, tighter margins and credit, consumer pullback, and a fluid policy environment. And with 27% of US companies delaying investments or expansions, business leaders are asking: How can we strengthen the company balance sheet without slowing growth? 

Across industries and sectors, a clear strategy to preserve financial stability provides a strong foundation for growth. At a time when traditional paths, such as loans, may be less accessible, the good news is that capital solutions designed for today's economic realities are available. 

A solid foundation poised for growth

First, it’s important to get your financial house in order so creditors, customers, partners, and potential investors can see you're prepared. Detailed financial statements and a robust business plan signal strong oversight, a clear understanding and appreciation for financial soundness, and a readiness to pursue growth.

This is a good time to optimize your working capital. Do a budget review and get realistic about spending. At the most basic level, where can you cut costs? Sometimes opportunities are hiding in contract terms with vendors, suppliers, and insurers, and you may be able to negotiate better ones. Evaluate what you really need spend on real estate, business supplies, and other areas. These are low-cost ways to free up cash to invest back into your business—and they can add up.

Other avenues include shorter terms on accounts receivable, reduced excess inventory, and extended average days payable. A healthy cash flow can improve your standing with lenders, opening doors for new financing or better terms on an existing loan.

Funding opportunities that power growth 

Companies looking for external funding avenues will find options that are particularly well suited for a complex business environment. Here are some to consider:

Sale-leasebacks

Do you have assets such as real estate, heavy equipment, or vehicles that you could sell to free up cash, and then lease back? Sale-leasebacks provide a way to unload the costs of ownership and  fuel growth. This is most suited for businesses where owning these assets isn't critical to the business model, but use of them is, such as retail, health care, manufacturing, and distribution. 

A sale-leaseback has a number of benefits:

• It turns an illiquid asset into cash. Not only that, but selling the asset brings you 100% of its current market value, which provides funds for growth, debt reduction, or acquisitions.
• Lease payments are generally tax-deductible as a business expense, while only the interest on a mortgage payment can be deducted.
• The lease can be flexible in payment terms and to suit how you will use the assets for your operations. 

Keep in mind that no longer owning the asset adds some uncertainty to future use and to lease obligations and terms. Factor this in when weighing the benefits of using sale-leaseback as a way to free up cash for future expansion.

Equipment financing

Businesses that rely on machinery or technology with a high price tag can preserve working capital by leasing or taking out a loan to acquire the equipment, rather than paying the full cost up front. You can renew the lease at the end of the term or return the equipment and lease an upgrade. If you took out a loan, the equipment is yours after payments are complete. Old National Bank offers commercial credit and financing to supplement cash flow and expand your business.

Refinancing

If you qualify, refinancing an existing loan to more favorable terms is a relatively straightforward way to free up capital. Lower interest rates or an extended payment term can give you more flexibility to pay for growth initiatives. Refinancing requires a good credit score (680+ for most lenders), so make timely payments and smart credit use a part of your business strategy.

Strength in collaborating 

Look around your community and your industry. Are there synergies you could capitalize on? Business leaders are increasingly open to new ideas and ways of doing things amid economic uncertainty. You may discover unexpected opportunities that benefit your business now and in the future. Consider sharing office space or functions like human resources or IT;  join forces on marketing or bulk purchases with similar businesses; or trade products or services with vendors instead of using cash. 

Strategic equity partnerships

Investors who throw their support behind your company can help you reach your goals more quickly. With a cash infusion, you tap into new capital without the drawbacks of loans, like taking on debt or higher interest rates.

Strategic equity financing comes in a wide variety of packages depending on the maturity of the company, the industry it's in, and the level of financing it seeks. All the options share certain advantages for businesses that use them. They provide an injection of cash, with no loan repayments, to even out cash flow, and they strengthen the company's balance sheet.

• Seed and angel investors: Friends, family, and interested individuals fund early-stage companies to help them launch from concept to market. Many angel investors also have entrepreneurial or industry experience and can bring strategic guidance or operational know-how — not just money.
• Venture capital: Promising but unproven companies in the growth stage draw venture capital companies that not only invest but offer expertise and network access. Venture capital can be well-suited for technology or innovation-driven companies that need to move fast. 
• Growth equity: Older companies with a proven business model that want to expand, perhaps into a new market, receive funding from hands-on investors but retain operational control. This type of support can open doors to new partnerships and add significant credibility in the eyes of the market or potential acquirers. 
• Private equity: Investors use debt to restructure and improve operations at more established, often underperforming, companies. Unlike other forms of equity financing, private equity investors generally take ownership of the company. Old National Bank offers funding options to companies backed by private equity sponsors.
• Public equity: Mature companies with a proven track record can file an IPO (initial public offering), a complex process to sell publicly traded shares on a stock exchange. 
• Crowdfunding: Early-stage companies, often the founders themselves, solicit contributions from individual supporters on a crowdfunding platform. This can build marketing buzz and drive brand loyalty, as early backers can often become passionate brand advocates. 

Regardless of the type of equity financing involved, it is essential to prepare a solid business plan with clear revenue projections. Any kind of investment requires a confident, doable plan and strong relationships with potential investors.

Future-focused technologies

Much like the internet's arrival in offices 30 years ago, AI tools are here to stay. This is an opportunity to make growth-oriented investments, such as automating processes and freeing top talent for bigger responsibilities, that put your company in a stronger position to expand. 

New AI-powered tools can help make your business more competitive. Paper-based, manual processes are fast becoming a relic of the past. Even processes that are already automated, such as many accounting or payroll tasks, can now be accomplished in a fraction of the time, enabling employees to take on more strategic tasks that fuel the company's growth.

Data-rich technology can help you identify inventory needs, optimize logistics, boost repeat business, and predict market trends. After an initial investment, you can quickly realize benefits that improve your bottom line and position your business for growth in a fast-changing world.  

Strategic advice from Old National Bank

If you want to fund growth without compromising financial stability, Old National Bank provides local lending relationships and expertise backed by significant assets for companies of all sizes. Your Old National business advisor will be with you through the ups and downs of running your business, with recommendations for services and products tailored to your goals. Call for an appointment today.