Thursday, April 3, 2014

Funding sources

     Free daily advice for people in small business
     from someone who has been there, done that.

     Money is always in short supply in small business. If only you had some extra funds, you could add new product lines, expand services, and grow the business.

     Some creative approaches can be put in place to find the funding you need. You don't have to depend on banks, venture capital firms, and government-backed loans to get money.

     Everyone in small business has used--or thought of using--loans from friends and family. After all, these people already know you are a trustworthy person. Always write up a contract if you go this route.

     In addition, private investors are all around you. Network your way through doctors, accountants, lawyers and other professionals. They might be discouraged with their own private investments. With either a loan or a piece of your business, you can offer them a better return than they otherwise might expect.

     Other methods speak to your ingenuity and negotiating skills. Some types of businesses can sell their receivables to factors. This can be expensive, but at least the cash is flowing.

     Small businesses can always use small infusions of funds. Credit cards can provide some flexibility, and they are used to good advantage to bridge gaps in cash flow, smoothing the ups and downs in local economies, and providing temporary relief in cash shortfalls. But credit cards are not a long term solution to the problems of small business. 

     Other ways to get the cash flowing more quickly include: (1) "borrowing" from your wholesale suppliers by negotiating longer payment terms for goods--by the time their invoice arrives, you have sold the goods at retail; (2) "borrowing" from your customers by selling gift certificates--some of these will never be brought in for redemption; (3) "borrowing" from customers who buy your custom manufactured product by having them pre-pay for later delivery, or have them agree to make work-in-progress payments--this method can work well in certain industries (printing, construction, machine shop, landscaping, consulting, etc.); (4) some businesses sell maintenance and repair contracts--payments come into the business upfront.

     The foregoing methods are short-term solutions to managing cash flow. To tackle the longer term funding for expansion and growth, you need that business plan. No banker or venture capitalist or private investor will ante up funds until they have studied your business plan and have confidence in your ability to follow through.

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