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

Tags | business, cards, credit, entrepreneur, financing, internet, probability, result, results, single, sized, successful, sustainable, unexpected