Many people think that debt and starting a business go hand-in-hand, but this is not necessarily true. One of the reasons that many small businesses fail is that they become overburdened with debt too soon in the game. The conventional wisdom is that small business owner needs to raise as much working capital as possible, and once the business gets going, the debts can be paid off. However, many businesses don’t take off like rockets, but require time and patience to grow. There may be a significant period of time where a business does not yet make a profit and there are debts to pay. This could mean trouble.
Securing Working Capital
The very best way to fund a business without headaches is to have a wealthy investor take an active interest in your product or service and decide to invest in your company. This is the dream of every small business owner, but it happens quite rarely, particularly if a new entrepreneur doesn’t have a lot of wealthy connections. Another step many people take is to get a working capital loan from a bank, but this takes time and paperwork. If the new business owner has troubled credit or doesn’t have a significant credit record at all, it can be difficult to borrow money to start a business with a bank loan. In addition, the wait time could be substantial.
Another step many new business owners take to generate working capital is to go to private investors. You may be able to get a loan even if you have spotty credit with high-interest rates and a short repayment schedule. This can represent a significant burden to a small business owner if the business is not immediately profitable. It may not be worthwhile to take such a loan to start your business if you are going to be burdened from the start.
Investing for Success
A third path that many small business owners do not take because many are impatient to implement their idea right away is to raise money for working capital through investments and to keep those investments going while businesses running. You need not wait years and years to realize your dream of starting a business, but you can to a financial advisor about how to set up a diversified portfolio that gives you sufficient return to start your business.
Having enough working capital is one of the business success essentials, and the other is having a clean balance sheet so that you invest in your business. Having little or no debt and strong investments that generate working capital means having the best of both worlds when it comes to getting your business off to a solid financial start.
Once you’ve got your business off to a running start without using debt as a crutch, you can keep going with growth plans because you have a clean balance sheet. Your competition may have a significant amount debt to pay off every month, but since you do not have that burden, you can become more competitive and invest in aggressive marketing and improvements in your product or service. This leads to a virtuous cycle and gets your company off to a healthy financial footing.
You can continue to grow your business through several ways. One is to reinvest your revenues back into your business so you can buy software or make new hires that can be additive to your company’s growth. You can also have an advisor continue to manage a diversified portfolio which provides additional capital without taking up any business resources. Always be alert to where your money is going and periodically review your budget. Look for ways to cut costs or make the operation of your company more efficient. View time as money and research time-saving software and outsourcing options to get the job done more quickly and cheaply.
Debt is not the fact of life when it comes to starting a business. After all, the expression is that death and taxes are inevitable but not debt and taxes. Use investments as a way of generating working capital for your business and you’ll have the freedom to make important decisions and grow your bottom line. If you give your company a debt-free start, your business will be free to grow and compete.