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By E. James Burton
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E. James Burton is Dean of the Jennings A. Jones College of Business at Middle Tennessee State University in Murfreesboro, TN. He holds a Ph.D in accountancy, as well as an MBA. His books include Total Business Planning, Accounting and Finance for Your Small Business, and Sales and Operations for Your Small Business, all published by John Wiley & Sons.
Q. Where can I find financing to help me expand my computer repair business?
A. First, ask yourself why you need to expand the business. If the answer is to hire people, then the financing should probably come from the additional revenue these new people will generate. New hires should be self-funding.
If, however, the answer is to get inventory, then the financing may come, in large part, from vendors. As long as you have a reasonable turn of inventory and pay promptly, your vendors may cover most of the additional inventory you need. After all, they want to do business with customers who buy -- and pay for -- more of their goods. But, if you haven't paid promptly or your turn of inventory has been slow, some portion of your inventory will probably have to be financed as a medium-term asset, rather than a current asset. And that may require finding funding from other sources, like banks.
What if you want the money for fixed assets, such as equipment or a building? Since you'll undoubtedly need it long-term, banks are also a good bet, because you'll have assets they can use as security. One caveat: If the equipment is special-purpose, banks may be less amenable; they don't generally like to risk having to sell off special-purpose assets. In that case, you can try leasing, which is a service some credit card companies provide as well.
One other avenue for long-term financing is to look for angel investors. Check with your local Small Business Development Center, the local Chamber of Commerce, and any appropriate professional group to see if there are wealthy individuals or groups in the area that provide financing to growing businesses.
Before you go any further, you'll need to develop a business plan and build pro forma financial statements to see if the expansion really is a good idea. Then use the information to sell your vendors, banks, or angels on the idea.
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