Does Your Business Require Outside Funding?

Does Your Business Require Financing?

Before you can answer this question, you have to ask yourself:

  • Have you unlocked all the internal sources of cash that could be hidden on the balance sheet in terms of increased accounts receivable and inventory turnover, monetization of other unused assets such as old and unused equipment and payment of accounts payable that better matched your business cash flows?

  • Have you determined the profitability of future growth that required this financing? This may not be possible without determining the current profitability of your customers. Some customers are almost certainly more profitable than others. The profitability of future growth, and the probability of hitting that target, determines how much you can afford to pay for financing.
  • Have you determined the purpose of financing? Is the financing to be used to finance increased working capital in the form of increased accounts receivable and inventory? If so, an increase in the line of credit may be an option. Purchase order financing or factoring are other options in certain cases. For long-term financing, is it for tangible items such as real estate or equipment or is it for intangible assets such as market or product development. If it is for the latter, you could consider lending personal funds to the company and take security in any unencumbered assets. Other possibilities could be government grants (many of these require matching funds) and scientific research and development tax credits (some finance companies will discount these, offering you cash up front).

These are some of the considerations you have to make before you apply for outside financing.

Posted in Cash