If you have established a wholesale business and intend to grow it to the next stage, you need to plan carefully in order to ensure you don’t endanger what you have built so far. That means getting suitable business finance in place and making sure that your supply chain, staff and systems can cope with your planned expansion.
Manage your Cash Flow
Cash flow is an important element to manage in the expansion of any business, but it is particularly important for wholesalers.
As you start to get bigger orders from your customers, and new clients are joining your books, you have to start spending more on supplies in order to meet these needs. Wholesaling often involves having enough in stock to meet orders quickly, as this is the key service you provide to clients. Therefore, you will have to invest disproportionately in building up your stocks as you grow.
Eventually, these extra stocks will translate to higher revenues – but it may take months before you are paid. This cash flow gap can cause huge problems and needs to be anticipated in order to ensure suitable funding cover is in place. Higher staffing needs, bigger premises and increased bills may also hit before the money starts rolling in.
Keeping a tight inventory is part and parcel of wholesaling and will help mitigate this cash flow impact, but it can’t do away with it altogether, because clients don’t usually pay their bills until 30, 60 or even 90 days after they are sent out. Invoice finance allows you to access most of this money, which is usually tied up in your accounts receivable, up front. It can be a great way of making sure you have enough business funding in place to always meet working capital requirements, as well as paying for investments such as marketing which help you to grow.
Secure the Supply Chain
Another issue to consider when you plan an expansion is whether your suppliers can keep up. If you are relying on relatively small suppliers, your own expansion will mean an exciting growth opportunity for them, but that also brings the same cash flow dangers as you face.
You can build a tighter bond with your suppliers and ensure they are funded to meet your requirements by using supply chain finance. This is a form of business finance which helps your cash flow position and your suppliers’ position at the same time.
By using supply chain finance, you can not only make sure your suppliers are ready for growth: you can also further close your own cash flow gap and ensure your orders are a priority – often at no cost to yourself!
Work on your Margins
It’s easy to concentrate on building sales and forget about your costs, but this is usually a mistake. Whatever high tech start-ups like Twitter or Instagram might suggest, in the real world of B2B sales your margins are critical to a successful expansion.
In fact, it may be that you can improve your profits considerably without even growing sales. This is often the easiest kind of growth, and is much preferable to the opposite scenario, which involves managing an expanding business for no extra rewards.
Look at areas such as staffing, warehousing costs, logistics and your business financing for potential savings. And make sure that none of these areas grow unduly as you scale up.
Get Flexible Business Finance
While most businesses will certainly need business finance to grow, the finance itself can end up eating into profits and become part of the cash flow and margins problem. In particular, bank loans tie you into a fixed amount of funding for years and drain your monthly budget with obligatory repayments.
A more flexible method may work better for you. Flexible funding methods suitable for wholesalers include invoice finance, supply chain finance and trade finance.
