In the dynamic world of start–ups and small businesses, growth is not just an aspiration—it’s a necessity for survival.
However, growth requires resources, and more often than not, those resources come in some form of financing.
But how do you know exactly what kind of financing your business needs? This is where a GAP analysis kicks in, serving as a crucial tool for small businesses to understand their financing needs for growth.
Understanding The GAP Analysis
A GAP analysis is a method for businesses to evaluate their current performance against their potential or desired performance. It is about identifying the ‘gaps’ between where you are, and wish to be. For small businesses, this analysis is particularly crucial when it comes to understanding financing needs.
The Importance of GAP Analysis for Small Businesses
Small businesses often operate with limited resources and tight margins. Every financial decision can have a significant impact on the company’s future. By performing a GAP analysis, small business owners can:
1. Identify areas of improvement
2. Understand resource allocation
3. Pinpoint specific financing needs
4. Set realistic growth aims
5.Develop strategic plans for achieving goals
Steps to Perform a GAP Analysis
1. Define your current business state: Assess where your business stands now in terms of performance, resources, and capabilities.
2. Identify your desired state: Determine where you need your business to be, come a specified period/timeframe.
3. Analyze the gap in current state to your desired state, and measure the difference in monetary value.
4. Develop strategies: Create actionable plans to bridge these gaps.
Common Financing Gaps in Small Businesses
Through the GAP analysis, small businesses often discover financing needs in areas such as:
- Working capital for day-to-day operations
- Equipment or technology upgrades
- Inventory management needs
- Marketing and sales expansion requirements
- Hiring needs and cost of training staff or new recruit
- Research and development for new products or services
How GAP Analysis Informs Financing Decisions
Once you’ve identified the gaps in your business, you can make informed decisions about what type of financing you need. For instance, if your GAP analysis reveals a need for new equipment, you might consider an equipment loan. If you need to increase inventory to meet growing demand, a line of credit, quantifying exact funding requirements and collateral backing needs, might be more appropriate,
This targeted approach to financing is far more effective than simply seeking a general business loan. It allows you to match your specific needs with the most suitable financing options available, thus potentially improving your chances of approval and ensuring you don’t take on more debt than necessary, or less, thus needing to burden yourself with even more debt that you might had liked.
Avoiding Pitfalls in Loan Applications
Many SMEs and startups continually miss out on getting critical loans approved for their business survival. This often stems from not knowing or understanding how to perform this important analysis before pursuing the facility. Without a clear understanding of their financing needs, these businesses may:
1. Underestimate or overestimate the amount of funding they require
2. Apply for the wrong type of financing vehicle
3. Fail to demonstrate a clear plan for using and repaying the funds
4. Struggle to articulate their business goals and growth potential to lenders
By performing a thorough GAP analysis, businesses can avoid these pitfalls. They can approach lenders with a clear understanding of their needs, a solid plan for using the funds, and a compelling case for how the financing will drive growth and improve their ability to repay the loan within the shortest conceivable period.
The Role of Professional Assistance
While the GAP analysis is a powerful tool, it can be complex, especially for small business owners who are already juggling multiple responsibilities. This is where professional assistance can be invaluable.
Nexus Integrated Global Services Limited, Abuja licensed Credit Lender, is playing a key role in this space. Working alongside other business process consultants and legal firms, all experts in the intricacies of managing Startups and Small Businesses, Nexus is helping Nigerian Start-ups and SMEs reach their full business potential.
Their services go beyond simply providing loans. They assist businesses in understanding how to perform and execute a proper GAP Analysis critical to their success. This approach is particularly beneficial for businesses seeking to modernize and revolutionize critical sectors of the Nigerian economy.
By helping businesses understand their financing needs through a well-designed GAP analysis, Nexus Integrated Global Services Limited is not only facilitating easy access to loans and credit facilities but also empowering these businesses to access loans through other channels, where need be. Their comprehensive approach ensures that businesses are properly positioned to make the most of financing opportunities, driving growth and contributing to the overall development of the Nigerian economy.
In conclusion, the GAP analysis is a powerful tool that can help small businesses understand their financing needs for growth. By identifying gaps between current and desired states, businesses can make informed decisions about financing, improving their chances of securing the right funding and achieving their growth goals. With the help of professional services like those offered by Nexus Integrated Global Services Limited, Nigerian SMEs and startups are better positioned to navigate the complex world of business financing and drive economic progress.
McBrain & Company is a bespoke Business Consulting Services & Financial Advisory company specializing in Corporate/Management Advisory, Project Finance Advisory, Private Equity Intermediation, Business Plan Designs, Feasibility Studies & Report Presentations, Pitch Deck Designs, Financial Markets/Company Analysis Reporting & Presentations, Crowd Funding Advisory, Business Process Management, Investment Product Brokerages, & Content Marketing. mcbrainandcompany@gmail.com
