Growth creates opportunity, but it also introduces new financial complexities. The banking solutions that support a startup or small business may not provide the flexibility, efficiency and strategic guidance needed as an organization expands. From managing cash flow and funding capital investments to protecting against fraud and streamlining operations, business owners must ensure their financial infrastructure evolves alongside their growth plans.
“Businesses often focus on the next milestone, whether that’s hiring employees, expanding facilities, purchasing equipment or entering new markets,” says Scott Gnau, Commercial Lending Leader at First Federal Lakewood. “Having the right banking partner in place can help business owners prepare for growth, navigate challenges and build a strong foundation for long-term success.”
Smart Business spoke with Gnau about how a company’s banking needs evolve as they grow and how the right banking relationship can support each stage of that journey.
How do a company’s banking needs typically change as it grows?
As a company scales, banking needs can change in three general areas. Those include their capital needs to support their growth, their treasury needs as they work towards enhanced capabilities (i.e., ACH, wire capabilities, integrating payroll systems, positive pay for risk and fraud prevention) and sweep accounts to pay down working capital lines of credit (LOC sweep), as well as maximize their earnings in a money market (ZBA sweep).
What are some common financial challenges business owners encounter during periods of rapid growth?
A working capital gap is a common challenge. A working capital gap occurs as revenue expansion demands upfront cash and/or capital to support the growth. A gap is created before customers pay, given the upfront cost required. Banks consider asset-based lending options, supported by accounts receivable and inventory. Strong banking partners provide proactive cash flow testing to help mitigate a working capital gap, helping leadership secure financing before a liquidity crunch hits.
Beyond financing, what products and services can help businesses scale more efficiently as they grow?
Those products and services include remote deposit capture, which lets businesses deposit high volumes of checks directly from their headquarters to expedite accessibility to the cash. Corporate card programs and merchant service platforms are also helpful when scaling.
What are some signs that a business may have outgrown its current banking relationship or financial structure?
Look at lending capacity ceilings, meaning the client has outgrown what is available to them and further financing needs cannot be supported. Another sign is reactive communication rather than proactive. Also, consider operational friction across the software and services provided within the online banking platform or the company’s banking needs.
What advice would you give to business owners who are developing a three- to five-year growth plan and want to ensure they have the right financial foundation in place?
Introduce your bank early, clean up financial reporting and make sure you have the right CPA team around your company. Also, stress test covenants, utilize templates to project the company’s cash flow needs and work on projections with accountability measures to ensure the best possible accuracy. ●
INSIGHTS Banking & Finance is brought to you by First Federal Lakewood.
