Small Biz Articels .com - Small Business Articles
 
To bookmark this page click here in Explorer -OR-  press Ctrl and D in Netscape or Firefox   Email this page to friends   Your Favorites SearchMain Page 




Small Biz Articles » Finance and Accounting » Leasing » Rate/Review - Recommend

 



The Worst Small Business Financing Strategy Ever?

Depending on whose stats you pay attention to, approximately 80% of small businesses fail within their first 5 years of operation.

In many cases, its not that a particular business could not succeed; there just wasn't sufficient time to figure out how to succeed.

Which brings us to the worst small business financing strategy ever.

Here's how it work.

The would be entrepreneur develops what they believe to be a sure fire business plan that can't fail.

Unable to locate any form of start up capital, they start their business with credit cards as the only source of financing, and an expectation of sustainable business results within 3 to 6 months.

If everything goes well, the debt will be retired within a year and funds will start building in the bank account.

Sounds Good, right?

I mean the thinking lines up perfectly with all the get rich quick business opportunities that exist on and off the internet today where some of them even try to convince you to use your credit cards because the opportunity is soooooooo good and can't miss.

The problem is that every business can miss.

Every single one.

And the vast majority do fail.

Have you ever spoken to someone who runs a successful small business; perhaps one that's been around for 10 to 20 years?

If you take the time to ask one of these entrepreneurs about their start up period, what you learn may shock you.

Even some of the most successful small and medium sized businesses out there today had some hairy moments making a go of it in the early years.

And some times the difficult early years lasted for several years.

The point here is simply this.

The process of getting a business operating and successful can take many unexpected twists and turns, no matter how diligent you are in creating a thorough business plan and business financing strategy.

Therefore, to increase your probability for success you need to allow for the unknown, the unplanned, and the unfair.

A business financing strategy that cannot accommodate unforeseen events is not much of a strategy.

A business financing strategy that is based on high interest credit cards that can destroy both your cash flow and your personal credit is also not much of a strategy.

To improve your odds of small business success, here are some tips for developing a solid business financing strategy.

>>> Invest Your Own Cash

If you have some of your own cash penciled into your business financing strategy, it will immediately increase your likelihood of getting some sort of start up loan.

The more "skin" you have in the game, the more interested a lender will be in approving your loan request.

There is also something to be said about the psychological incentive of losing your own money and the motivation it creates for you to work harder to keep it.

>>> Create Contingencies in Your Cash Flow

Whatever you estimate your working capital requirement to be, double it. At least increase it by a factor larger than 1.

Things can and will go wrong, so give yourself a fighting chance and develop a business financing strategy that allows for less than perfect results.

>>> Use Credit Cards Wisely

Used properly, credit cards can be the cheapest form of working capital that you have at your disposal.

Some business credit cards provide 40 days of interest free financing. If you pay off the entire balance every month, you have an extremely low cost of working capital financing.

But if you start carrying large balances without paying them down monthly, you will go from the cheapest source of working capital to one of the most expensive, and you will likely also destroy your credit rating in the process.

>>> Make Timely Government Remittances

Small businesses are by default tax collectors. And the taxes collected can sometimes wind up funding the business for longer periods of time than they were ever intended.

Using government remittances as a business financing strategy is basically a bad idea.

Government agencies that are assigned to collect from you have large budgets and enough broad sweeping authority to create plenty of grief for you if you are too slow in paying.

If you apply for a business loan while you have an overdue balance with a government tax agency, your loan request will likely be declined.

Even after the balance is paid up, you may have burned your bridge with the lender as a history of overdue government remittances can brand you as a bad credit risk.


>>> Watch Spending Closely At Startup

One of the things you can control early on is how much you spend and what you spend it on.

This is going to change in time, but if you can spend wisely in the beginning you may be able to avoid a cost cutting exercise further down the line.

While its normally true that you have to spend money to make money, you can still be smart about the spending process.







 
This article was submitted by - Brent Finlay Please Rate/Review this Article - Recommend it to friends

The Worst Small Business Financing Strategy Ever?
If you are a small business owner, or considering becoming one, then you will be interested in learning how to avoid cash flow suicide brought on by a poor business financing strategy.

Venture Leasing: Startup Financing On the Rise
The Growth In Venture Capital Investing Has Given Rise To A Relatively New And Expanding Area Of Equipment Leasing Known As ‘venture Leasing’. Why Has It Become So Attractive To Venture Capital-backed Startups?

Using Retirement Money To Finance Your Small Business
Alternative source of financing for small business owners with loan from new solo owner 401(k)plan



Disclaimer: The Worst Small Business Financing Strategy Ever? & Leasing related small business articles and small business information provided on this web site is not to be construed as business advice from the website Small Biz Articles.com - or from the corresponding author who posted this article on our website. Leasing articles on our website were submitted by various small business owners, entrepreneurs, authors, business experts, accountants, lawyers and other business professionals, but we do not verify the authenticity and the accuracy of information submitted and we are not responsible for any errors or inaccuracies. Please consult with one of the small business administration or small business development officers in your local SBA-SBDC centers, or with an attorney, accountant, a small business expert/advisor, to obtain proper business advice and accurate information for answers related to any specific questions you may have with regards to your small business issues.
Your use of this website constitutes acceptance of the site Terms & Disclaimers.
Copyright © 1998-Current, Smallbiz ArticlesSM and affiliates. All rights reserved.