How to Finance Expanding Your Home Services Business
- June 4, 2019
- By: Vonigo
When success comes quickly, most home service businesses consider their desire – and need – to grow.
Often this is done through expanding the territory a business covers, increasing the potential for a greater market share of households in new areas.
If you’ve already created a fiercely loyal customer base but see room for growth, expanding your home services business may be your next step.
Why Should You Expand Your Business?
Growing your business can come with some new and increasing costs. From tackling a new demographic of customers to bringing on more employees who are qualified to do the job. It may also mean purchasing more equipment, like vehicles or updated supplies.
No matter what growth means to your home services company, there are inherent benefits to expanding, including:
- The ability to reach more customers without sacrificing the quality of service
- Increasing profit potential
- More staff may lead to new ideas for services offered or processes
- Larger customer base may provide an increase in passive growth through referrals
Although these benefits of business expansion are enticing for home services companies, the question of financing growth is common.
How to Finance an Expansion of Your Home Services Business
Fortunately, you have several options for covering the cost of growing your business.
Banking Your Revenue
Home services businesses with high-profit margins may be best served by saving up additional revenue for future expansion. Excess profits can easily be set aside each month or quarter, earmarked for the next phase of the company.
This strategy requires an understanding of what expansion will cost and whether it is feasible to siphon off enough profit without compromising the current financial standing of the business.
Take the time to evaluate what growth means for your home services business and attach a price tag to that expansion goal. Then, budget to save a portion of revenues to accomplish it.
If your home services business doesn’t have the ability to save a portion of revenue, funding expansion can be done by seeking out external investors.
This strategy can be less expensive since the business is leaning on someone else’s financial abilities rather than its own. However, finding an investor is not an easy task. Most large investment firms focus on high-growth companies, often driven by technological innovations.
However, there are options for smaller, local businesses in the home services industry. Angel investors give early-stage support in the form of capital, in exchange for equity in the business. Many angel investors focus on companies that make a difference in their own communities, where home service businesses often thrive.
Angel investors may be more inclined to talk about investment in the company if a promise of expansion is on the table.
Business owners should have all their financial ducks in a row, including cash flow statements, balance sheets, and income statements, along with a detailed plan for expansion of the business.
Business Expansion Loans
When saving revenue and outside investors are not an option, financing for business expansion may be feasible with the help of a business loan. Business loans are available from many different sources, including Small Business Administration (SBA) lenders, online lenders (such as OnDeck), and conventional banks and credit unions.
Getting a loan has inherent benefits, including a fixed interest rate, a planned, steady monthly payment, and a known amount of funding in the form of a lump sum. However, securing a small business loan comes with some challenges.
Small business loans require a business to have a track record of revenue and steady cash flow. Lenders want to feel confident that a loan can be repaid as agreed. Organizing your financial statements and having a detailed plan for expansion is helpful when pursuing this financing source.
Expanding to Increase the Value of Your Business
Expanding a home services business is a smart move for companies that have experienced success with its initial customer base.
Expansion spurs the potential for increased profits, greater market share, and long-term customer relationships for many home services companies. All of these help to increase the value of the company as a whole.
Finding the right financing can be a challenging task, but home services companies have many options. Whether it is saving up revenue over time, connecting with outside investors for their capital, or tapping into financing through a small business loan, businesses on the verge of expansion can use one or many of these solutions to get the job done effectively.
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