Your coaches introduce the topic and share tips for maximizing your cash flow.
In this lesson, we’ll talk about financing the growth of your business: the kinds of credit lenders offer, and what they’ll want to see from you when you apply.
The process of borrowing money for your business is similar to borrowing for yourself. However, the reasons can be different. When you get a personal loan, it’s usually to buy something you simply want to own — like a car or appliances…
… but when you borrow money for your business — if you’re a smart business owner — it will be to expand or improve your business and its profitability.
You’re right! One example would be getting a loan to buy equipment that, over time, would increase your production capacity or lower your production costs.
Having business credit can definitely be helpful, but remember: you’ll pay a price in interest. If your business has good cash flow, you may not need to borrow as much or as often.
Lower your overhead
Look for ways to lower your overhead. Shop for better pricing on what you buy. Cut back on non-essentials.
Work with reliable vendors
Work with reliable vendors that deliver quality merchandise on time. If a shipment is late or of poor quality, you miss opportunities to sell your inventory and bring in cash.
Lower prices selectively
Make the hard decision, when necessary, to lower prices when items don’t sell. You’ll be able to recover your cash and put it into products that will sell more quickly.
Improve your cash tracking
Create a monthly cash flow chart, showing when you expect cash to come in and go out. This will help you anticipate possible cash shortages. Streamline your bill collection process so that you get paid more quickly whenever possible. That way, you’ll have your own cash to work with, rather than paying interest on borrowed money. Double-check your bookkeeping to avoid fraud and overpayments.
Invoice and collect promptly
Invoice and collect promptly from your customers. Consider having a 14-day payment cycle rather than a 30-day payment cycle. Be sure that your invoices permit you to charge interest for late payments. Be careful to track accounts for prompt payment. When you extend credit, you lose access to cash and the interest it may generate if invested. Follow past-due accounts closely. The more overdue an invoice is, the less likely you are to collect it.
Thinking about borrowing for your business? Click the Next button for points to consider first.