To grow a small business, a person must know how to acquire and manage finances at every stage of growth. Small business financing doesn’t have to be difficult if you know exactly what to do and what to avoid.
Many small businesses fail because the owners believe that there is no need to establish any financial directions. This type of thinking is a mistake. It is a failure in the making. The reality is that you must have a vision with clear financial goals and objectives. In addition, you should know at least 8 other things in order to effectively manage expenses.
8 Things You Need to Know
Having a fully constructed Business Plan to Inspires Confidence
Without a business plan, there will be confusion and chaos. You won’t know where your business is going. Without such a plan you won’t have an idea of how to deal with expenses. In addition, banks will likely refuse to give you a business loan if you can’t produce a fully constructed business plan. Your potential lenders want to be certain that you know what you are doing and know where you are going.
How can they trust you with their money if you can’t tell them about your business and where you want to take it? The situation indicates failure from the start.
Building up your own person savings puts you ahead
Make sure you have built up a personal saving for opening and launching your business. As a new start-up, you can’t expect a bank to simply give you a business loan. Usually, banks want to know if they can trust you with their investment.
The decision to lend you finances will be based on several factors, including an honest financial track record, a good credit score, and well-organized financial statements, detailing your business expenses.
But if you are just starting out, you have no history of managing finances. So you chance for financial help are slim.
However, if you have been building up income in your personal savings, you don’t have to wait on a bank to give you money nor will you have to face discouragement if rejected.
Using Referrals to Build Trust with Lenders is wise
Do banks want to know if you are trustworthy before they lend you money? They sure do! One of the best ways to prove that you are trustworthy is to refer them to your accountant or lawyer, the people who represent your business.
An accountant can produce a complete record of your financial statements, including you overall expenses and financial projections. A lawyer can verify that your company hasn’t been taking to court or sued due to dishonesty or corruption.
Keeping all your financial records and statements is smart
But never throw away or displace financial records if you are without an accountant. Before a bank considers giving you a loan, the lender will want to investigate how you have managed your money as well as how much money you potentially need.
Have a well- organized filing system for all your administrative material and documents. Banks will place more trust in your small business financing skills if they see that you have managed your expenses intelligently.
Asking willing lenders for more than you need is clever
If you strike it good with a lender who decides to give you a loan, ask to borrow more than you need. This approach is intelligent because it is easy to under- estimate business expenses. Since the market is always changing, chances are that you will need to make other investments that you never anticipated.
It is better to have more than enough financial resources than not to have enough to stay competitive in the marketplace.
Investing Finances in expensive technology is a mistake
It is a mistake to invest in cutting edge technology that giant corporation use. First, as a start-up, you cannot afford it. Your common expenses will be enough, including rent, payroll, office equipment, and basic technology such as computers, phones, answering service and IT assistant.
Leave the expensive, cutting-edge technology to a time when your revenue has doubled, and your market share and the stock has risen.
Advanced technology in many cases can make life much easier, but if you can hardly stay afloat managing the essentials of your niche, why to take such a chance on optional expenses.
Using any of your major assets for collateral is risky
Warning! Don’t put up your home or automobile for collateral, especially if you are not passionate enough to weather the ups and downs of managing a business. Your basic livelihood will be at stake if you should fail. Wait until you can save up the money or wait until you build up enough legitimacy to get a business loan.
Many small state-ups have filed for bankruptcy (furthering ruining their credit) because of making hasty decisions regarding collateral options.
Spending money without having sufficient funds is stealing
Dishonesty in business is a killer. Don’t spend money you don’t have. Writing a check to purchase the essentials of a small business when you don’t have the money in the bank is the same as stealing. You could be prosecuted for such dishonest activity. This type of activity has a name: fraud.
If you resort to this type of dishonest activity, your reputation will be ruined, and your opportunity for success in the business world will be minimized. So make intelligent choices.
Pre-Business Knowledge: its Value for You
Knowledge is the key. Small business finances will not be so overwhelming if you acknowledge potential mistakes regarding money management. To avoid falling into a serious financial crisis, connect with someone who has started a business and ask about the ups and downs of owning a company.
As a result, you will know what to expect, and small business financing will not appear to be so overwhelming.