How to use the company’s finance to develop your business
(Last Updated On: 19/10/2016) Small businesses, be on your guard! Without a positive cash flow your business can sink before it even flows into the wide water. Almost half of new enterprises cease trading activities in the first three years of operation , so the initial stages are the most important. During this time, additional cash will help you maintain your business and overcome the distance that divides business from a company with an established position in the market. Here are the most important things to keep in mind.
Consider Available Financing Options
Too many small businesses believe that their financing options start and end at the local bank manager. Meanwhile, due to the stringent loan requirements in force today, obtaining a loan from a large financial institution may be more difficult than anywhere else. However, there are many other short-term financing options, including buyer’s advance , loans secured against registration document, factoring, leasing and credit cards.
The interest rate on this type of short-term loans is naturally higher, so make sure that repayment does not hurt your business.
Alternatively, you can go a less formal way and ask your family or friends to invest in your newly established company. However, your relationship with your loved ones may suffer if things go against your plan. Another option is help from business angels or other third parties that will provide your business with an injection of cash in exchange for a share in equity.
Borrow As Many As You Actually.
Many small business owners make the mistake of asking the bank or other investor for an amount that they believe will be accepted, and not for what they really need. However, it is true that every investor wants to know that the company’s finances are well organized and that the candidate has prepared a solid business development plan to support the application. Procedures related to a bank loan can be particularly rigorous and involve a lot of paperwork, so instead of coming to an interview without preparation, make sure that you know exactly what you will need. If you are not applying for an amount that is realistically enough to grow your business in the long run, it is more likely that your application will be rejected.
Use Money wisely
Once you get additional financing, you must use it in the right way to ensure the best return on investment. Of course, if you lack cash, you can use this money to pay rent in the next month. However, if the revenues you get from a loan are lower – whether in the short or long term – than the amount you have to pay back, it means that you do not use these funds optimally. Reasonable methods of cash utilization include, for example, greater investments in machinery and equipment, which will reduce production costs or increase inventory to handle larger orders. Another option is to invest in new employees who may be valuable to the company. Think carefully about how to create the best team – from technicians to sellers, financial geniuses and employees with well-developed marketing skills – that will ensure your future development.
Your long-term planning options will depend in part on the company’s investors and shareholders. Some will care about quick profits and will push you into actions that give immediate benefits instead of leaning towards a long-term strategy to succeed. However, most sensible investors realize that ultimately, long-term profitability counts, and putting too much emphasis on high profit can harm the company’s financial stability. If you have external investors, you have probably prepared a plan B that provides for the sale of the company so that investors can be sure that they will receive a satisfactory return on investment. However, if you have the opportunity to finance business development without the help of external investors, there may be no compulsion to develop a plan B. In this case, you can focus on the long-term goal of sustainable and sustainable development of the company.
Most companies at the beginning of their business need a helping hand in the form of additional cash. Regardless of the way you decide to finance your new business, be sure to invest with your head to ensure your company’s long-term growth.