How do you fund your business? The majority of entrepreneurs fund their businesses through bank loans; in fact, almost all businesses wallow in debt. Debts are not bad, but bad debts are a catastrophe to any business enterprise. Debts become a problem when they begin to harm your business. Bad debts stagnate the growth of your business enterprise and ensure that you remain a slave to your business and the lenders that financed you rather than the boss. When you get deep into debt, you start focusing exclusively on paying your debts rather than managing your business. You then encounter difficulties in meeting your business obligations like paying your employees and suppliers. Your business stops growing and takes a nose-dive. So, what can you do in order to avoid wallowing in debt?
Lease rather than buy
Many new interprenures would like to buy everything before starting a business. They borrow money and build everything from scratch. This friend of mine started a supermarket. He rented a space and was doing so well. Stock inflow and outflow was superb. In a few years, his space became smaller and he needed to expand so he did the unexpected. He bought somebody’s building and started constructing a supermarket from scratch. Suddenly things changed. His stock started diminishing. George could no longer pay his workers in time. Financiers were unhappy. To cut the long story short, George closed down and we don’t know where he is. I suspect his stock was auctioned and I wouldn’t be surprised to hear that loaners are after him.
The best way to acquire equipment is to lease rather than go the traditional way of buying or building from scratch like George. This is the only way to avoid getting buried in debt as you start a business. If you finance your business through a bank loan, they will use your assets as collateral. They will expect money from you every month. You won’t be able to do anything without their permission. I said in my previous articles that business is unpredictable. Limiting yourself this way doesn’t leave you enough room to adjust. You can’t afford to tie yourself down this way. You need room to adjust. You can save a lot of money if you lease and you keep your assets free from attachment.
Get only what you need
Unless you are rich, you will definitely go for a loan to finance your startup. The best advice I can give when it comes to startup funding is, only take what you need. Taking more than you need is bad for you. Many small scale entrepreneurs would like to go for more than what they need. This therefore means that they will end up spending the extra cash on what is not really necessary. Some use such extra finances to go for a holiday or purchasing a dream car.
The purpose of a loan is to catapult you to a certain level so that you are able to achieve certain things you wouldn’t have achieved with your savings. It’s not a way of getting finances into your pockets for personal use. If you do that, then you are headed to fail. However, this does not mean that you should take little money because running out of money is worse.
Spend only on what’s necessary
Do not waste your cash if you want to succeed in business. Remember that this money is borrowed. Therefore, you will spend most of your income repaying your loan. This therefore means that you can’t afford to spend money on what you don’t need.
Buying things that you don’t necessarily need and failure to properly budget for the money you have at your disposal can cause you to drain your finances very quickly. Spend only on things that will directly benefit your business. Do not buy equipment and hire personnel you don’t really need. Monitor your expenses and ensure that they serve the right purpose.
Pay you debts
Many people would love to get away with debts. Everybody hates debts and some of us that have lent out money understand how difficult it is to get your money back. Don’t avoid paying your debts. Don’t run away. Pay your debts happily because that money that you received helped you to stand up on your feet. You will be happier when you clear your debts and the business will now be all yours! So don’t get mad that you are paying your debts. Use this challenge as a motivation to work harder to earn more so that you can have enough to pay your debts. Ensure that you also pay your debts on time so that you can find favour from lenders next time you run to them requesting for more funds.
Don’t shy away from paying extra especially when you lay your hands on some extra cash. This will shorten your repayment period and it’s good for you. This will also reduce your loan interests. Paying your debts will save you from finding yourself in bad books.
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Ensure that you are not consumed by bills that will hurt your business. Borrow funds but have clear plans for that money. Ensure that you use the money you receive wisely and for intended purose. If you can avoid taking loans, please go for the alternative ways of financing your startup. Lastly, ensure that you pay your loans as quickly as possible.