Man=
y new
entrepreneurs associate the need for financing only with the start-up phase=
of
their business. A loan or line of credit is often a necessity to purchase
equipment and supplies, lease a location and pay for marketing and
administrative materials. However, outside financing may also be used to fu=
nd
growth or new locations, or keep the business viable during an economic
downturn.
As =
part of
your long-term business planning, consider if and when supplemental financi=
ng
may be needed so that you can head off a cash crunch. To plan your firmR=
17;s
financing needs, first decide what you need the money for. For existing
businesses, the most common reasons for financing include increasing working
capital, preparing for seasonal peaks, the purchase of new facilities or
equipment, and sales expansion.
How=
much
financing will you need? The use and timing of financing usually determines=
the
needed amount. Consider factors such as the type of business, stage of grow=
th,
and whether the funds are to be used to increase working capital or invest =
in
fixed assets.
Nex=
t, ask
yourself how and when you can repay the money. The type of financing determ=
ines
how and when it will be repaid or returned to profits. Often, additional
profits generated from new equipment purchased through financing go directly
toward repaying the loan. An established firm operating on a seasonal sales
cycle may require only short-term credit that is repaid as inventory is sol=
d.
Las=
tly,
consider whether you can afford the cost of the money. The income generated=
by
financing should always outweigh interest charges or the amount of ownership
given up. Keep in mind that the bank lending you the money may require that=
you
offer assets as collateral for the loan.
Your
business plan can be translated into the hard dollars and cents of a capital
expenditures budget and a projected profit and loss statement. The capital
expenditures budget lists the planned purchases of facilities and equipment,
plus expected physical improvements. The profit and loss projection will sh=
ow a
break-even point and the point at which a profit is available for reinvestm=
ent
in the business. A loss might signal a need to increase sales, tighten
management, curb expenses or seek additional funds. If you project a cash
deficit in a period, check with suppliers to try to extend the credit perio=
d,
or cut back on optional spending.
If =
you
would like to discuss this topic or business planning, business growth
strategies or a specific business issue, contact SCORE® “Counselors to
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