Room to grow: predicting growth preserves capital and maximizes profits.

• Author: Steadman, Chad
• Position: FINANCIAL SERVICES - Viewpoint essay

I experienced my first real growth spurt in the fifth grade. I think I grew five to seven inches that year and enjoyed being taller than my classmates for several years.

By the seventh grade, I was about 5 feet, 8 inches and towered over some of the smaller kids. I have a picture of myself and one of my best friends--his head barely coming up to my shoulder. I quickly outgrew my shirts, shoes and pants. But the day I'll never forget is the day my mom no longer "looked down" on me. It was amazing to me how fast things changed.

With that type of growth over a short period of time, there were a lot of awkward moments while my coordination adjusted to the new size. Between youth and adolescence, it's tough to be ready for the accompanying physical and mental growth. Each of us grows in different ways. I have three brothers, and the growth came very differently for each one.

Monitoring Business Growth

Business growth is not that much different. It's hard to predict in terms of when and how much is going to happen. For some there is a period of rapid development and then a leveling out into expected sales. For others it's gradual and consistent, and for some that can be annoyingly slow.

During rapid growth periods, a business is awkwardly trying to find itself and adjust to its new sales size. Over-predicting progress can be a waste of capital and detrimental to a business. Short selling your potential brings about lost opportunity and lost profits.

Therefore, the first step in managing business growth is to anticipate how much will happen and when it will happen. This will help you take the second step, determining the proper path to access capital and fund the advancement of your business.

There are three main ways to fund growth:

* Personal or business equity

* Bank loans

* Investment equity from individuals and investment firms--such as the 49th Angel Fund

The first growth-funding option, personal or business equity, is typically used by firms that are experiencing slow to medium expansion. In this ideal situation, the owner or business has excess cash on hand to be used for purchase of the needed supplies, inventory, capital improvements and expansion of trade receivables that will occur with the new growth. This of course can happen if a business' net profits are large enough to be reinvested back into the company and either match or exceed the needed expansion. Sometimes the owner of the business has personal liquidity to fund the growth...