Financing Organic Growth
Mergers and acquisitions have dominated the conversations around growth in the financial advisor industry. Although a valuable and important growth strategy, smart advisors know that sustainable growth is achieved by investing in both organic and inorganic growth strategies. Whether it’s through enhanced marketing, hiring a Business Development professional, or through COI relationships, organic growth requires an investment of both time and money. When it comes to making that capital investment, advisors have three avenues to choose from.
Advisors can use personal cash to make an injection into the practice and use the money to fund advertising, a business development person’s salary, or other uses. Although this investment should pay dividends, using personal cash for business can leave an advisor cash strapped for a significant period of time. Also, an advisor may not have enough personal liquidity to fully fund an organic growth initiative. An advisor could liquidate a portion of their personal assets, but that could have tax consequences or other expenses that make it a costly way to access capital.
Another option is to take a portion of the profits and invest them back into the business. While this could impact the owner(s) earnings for the year, there may not be sufficient profits to satisfy the capital needs of the growth initiative. This option may also be limited by other current capital needs such as hiring support staff or paying back business debts associated with inorganic growth.
Working Capital Loans
As the advisor industry has matured and lending options have become more prevalent, the availability and access to working capital has emerged. Specialty lenders, such as PPC LOAN, who provide loans for acquisitions and equity purchases are now offering loans for working capital needs. Working capital loans and lines of credit give advisors the flexibility to invest the money as they see fit, along with flexible loan terms that are easy to manage while maintaining cash flow. This is good news for advisors eager to drive organic growth, but who either lack or are reluctant to tie up personal cash and/or practice profits.
Whichever source of capital you choose to leverage, it’s important to understand the cost of using that capital. For personal cash, the cost is reduced personal liquidity. For practice profit, its competing demands. For working capital, the cost is interest. In all cases, the rewards of investing in organic growth are a steady, sustainable path toward higher revenue and profits in the future.
Need working capital to drive organic growth? Contact us today to discuss your loan options.