External financing can greatly benefit the growth potential of a company. If the company seeks to boost its growth and protect itself from pitfalls, it is important to know how much finance the business needs. However, not all businesses completely understand how much funding they should secure.

Once a business identifies the necessary amount of funding, the lender can pinpoint the capital need through the system of outlined metrics. The lender then breaks down the cash flow solutions available. Since cash flow functions as the lifeblood of a business, a negative cash flow can put it at risk. If your business struggles with cash flow shortage, business financing can project it upwards exponentially.

How Does Business Financing Work?

Business finance can be defined as the finance available for businesses. Business finance is often referred to as corporate finance. This form of finance allows businesses to relieve their cash flow irregularities and plan long-term growth. Furthermore, it can also boost a company’s assets to brace against emergencies.

A variety of institutions offer business finance. Traditional banks, building societies and private lenders can be named as a few. Given below are a few popular forms of business finance.

• Business Loans
• Invoice Finance
• Asset Finance
• Merchant Cash Advances
• Business Overdrafts
• Business Credit Cards
• Commercial Mortgages

When Do You Need Business Financing?

A perfect time for obtaining business funding can be complicated to determine. However, this depends on the financial status and the future plans of your business. Some common reasons to secure funds are given below.

• Lack of Working Capital

Working capital refers to the amount of money needed for the immediate tasks of your business. When a company struggles with working capital, its short-term expenses cannot be covered. Hence, the business’s growth will be stunted. This issue can easily be overcome through business finance.

• The Business Looking to Expand

The growth of a business requires a lot of capital. Often, this capital can be obtained through external funds. Obtaining business finance for growth can be extremely yielding. Therefore, businesses tend to invest in their growth, once they perfect a certain level.

• As a Safety Measure

Businesses can avoid crumbling in face of a crisis, when they can overcome the problem with enough finance. Hence, certain businesses secure business finance and add it to their assets to increase the chances of successfully facing an unforeseen circumstance.

Calculating The Amount Of Funds Needed By Your Business

By considering the condition of your business, you can develop a rough estimation of the amount of external funding the business needs. Consider the scale of your company first. Hence, if it is a large company, you might be able to allow its working capital to stoop to the negative zone, temporarily. However, smaller businesses should save extra funds in their reserves.

If your business depends on physical inventory, it may require extra working capital to maintain even work. However, such companies mostly depend on the skills and knowledge of their staff. Hence, they require less funding compared to product-based enterprises.

Given below is a guide to make a more accurate calculation.

• Calculate the cash flow conversion cycle.
• Consider the company’s inventory period.
• Calculate the amount owed to the company by debtors.