How to Upscale Your Business with Inventory Financing

One of the great signposts of entrepreneurship is when the orders start coming in and you can allow yourself to feel like it might not have been such a crazy notion to start this business.

It’s a good feeling: What was once a far-off idea is now an actual functioning, growing enterprise. For many business owners, they follow up this realization with one important question: Now what?

It’s a perpetually open-ended question with nearly infinite answers, but the first desire for most owners is “grow.” Next steps could include expansion into new sales channels or retailers, or new product lines and features – or some combination thereof.

Any of these goals represent exciting growth opportunities. To increase your likelihood of success, establish specific goals and outline the needed resources to reach your goals, because growing your business exposes you to a number of new scenarios.

Expanding your business can create operational changes and require resource allocations that differ from your existing business plan. You should also consider some of the risks that scaling can introduce.

If you move too fast without planning, you could create a host of organizational problems that might be hard to undo. But if you scale too slowly, however, you can miss out on key growth and sales opportunities that come with greater resources and revenue.

That’s not to make it sound scary, but it is to reinforce that the best businesses think ahead.

Here are some things to consider: How much product do you need to have on hand? How fast it can be produced and shipped? Are your suppliers ready to handle the orders? How much money do I need to make all this happen?

That last question is can be the one that informs your answers to all the rest. While you need to be confident in your structure, marketing, sales and brand efforts, the first steps toward scaling often requires additional capital investment, which can sound scary.

Since cash on hand may not sufficiently meet the investment required to scale production, distribution and development without squeezing operational costs like rent and salaries, outside financial options are key components in upscaling a business. And just as every business is unique, and so are the financing options available to you, which includes straightforward business loans, lines of credit, business credit cards and inventory financing.

While they all have their merits, inventory financing can be the most advantageous for growing product companies as a lower-cost, lower-risk funding option to secure appropriate inventory for growth. With inventory financing, you receive funding to produce needed inventory and then pay back as it sells. This stocks your shelves without pinching your pocketbook by requiring repayment before that inventory begins selling and revenue reaches your account.

Inventory financing helps brands grow sales faster through:

No cost cutting. Your company doesn’t have to pare down while waiting for revenue to arrive. There’s a gap between when you pay manufacturers for your inventory order and when those goods sell and revenue arrives, which pinches the checkbook, especially if you’re placing a larger order to supply new retailers or prepare for something like a holiday sales rush. An inventory financing platform can provide you with the up-front funding to pay your manufacturer to produce products while operating your business as usual, which means you don’t cut back on staff or marketing or need to move into a cheaper space in order to grow.

Overcoming seasonal cash flow issues. There are ebbs and flows to the sales calendar. Cash flow might slow down if you sell a seasonal product. For example, sales in the summertime might not produce enough revenue to order all the stock you can sell during wintertime, which needs to be ordered and paid for at the end of summer. Instead of limiting your inventory purchase to what cash on hand allows, use inventory funding to order as much inventory as you know you can sell during peak season and then repay as that inventory sells. This provides you enough product to maximize your peak season and brings in additional profit to reinvest back into the business. The alternative is missing sales and seeing profit plateau without producing sufficient inventory for your best sales months.

Keeping sufficient inventory. If you have a product whose sales begin taking off and is gaining attention, you want to ensure you do what you can to capitalize on the attention. Use inventory financing to grab another product run while sales momentum. And since you can pay back as product sells, inventory financing provides needed inventory with the flexibility of repayment that won’t endanger your operations during the period between ordering, shipment and payment terms.

Fund early wholesale orders. Just as you’re noticing your products gaining traction, big retailers are likely taking notice too. Whether you went to a trade show and came home with purchase orders from a national retailer or you’ve got a hot product that stores across the country want to stock, you’re about to realize profitable national exposure but just need to make sure you can fulfill those orders. If your warehouse is empty but your orders are surging, don’t miss a milestone opportunity to enter national distribution and scale your business because current cash on hand prevents you from paying your manufacturer to deliver new orders.

In short, inventory financing is especially helpful when your brand must pay your suppliers in a shorter period than it takes to sell inventory to customers. It also provides a solution to seasonal cash flow fluctuations to order inventory during slower periods to sell during peak seasons.

When you leverage inventory financing to grow your business, you utilize your cash on hand to support normal operational expenses and reinvest into areas supporting growth, like advertising to build market interest or upgrading equipment to meet increased demand, or any other area you need to prepare for greater capacity.

Any financing choice needs to be evaluated against how it fits your goals and needs. Users of Kickfurther, an online inventory funding platform, find the flexibility to purchase inventory that meets market demand and pay back as it sells allowed them to realize growth faster than limiting inventory purchases to existing capital allowed.

Without needing to make payments immediately on a traditional business loan or line or credit, and without exhausting existing funds to finance purchases, those companies expanded their businesses through investment into new products or advertising into new markets.

Growth is exciting, and the businesses that do it best are those that plan ahead as much as they can. Always use your network to learn best practices from experienced peers, and leverage resources that allow you to work smarter as you scale.

If part of your growth plan includes increasing sales, contact Kickfurther to see how inventory funding can help brands scale their business faster.

This is a guest post by Graham Vosburg, director of digital marketing at Kickfurther. Kickfurther helps small- and medium-sized businesses raise working capital to fund inventory beyond what cash-on-hand allows to reinvest into the areas of their business.