As a business owner, it is crucial that you understand how business financing works. Having an elaborate and balanced comprehension of business financing will help you understand the risks and rewards involved in obtaining and managing business funding. One crucial mistake business owners make is having the tendency to use or treat business financing as they do with their personal finances.
As a general rule, a business owner should have a clear plan when seeking funding because a clear plan is what will determine whether the funding being sought will provide greater rewards than risks to the business. While this may be a shocker, not having a plan can lead to the demise of a business. How so? Your business is only as good as your ability to manage its finances. Instead of seeking out business funding first, as a business owner, it is important that you develop the ability to plan for the life span of your business financially. This theory explains why banks might ask for a three to five years business plan to ensure that a business will not only be able to start repaying its financial obligations when due or agreed upon, but also that the business will last long enough to fulfill its financial obligations to its debtors in the long run.
Given the fact that only 50% of businesses survive five years, it is of utmost importance that
business owners learn to manage challenges and not to become loyal to what does not work. Often times, the longer it takes for a business to become successful, the more loyal its owner tends to be to what does not work. For instance, when receivables remain low for a long time, a business owner may feel the need to get a part-time job as opposed to learning about collections practices to increase receivables. Perhaps you are curious to find out whether there is really a good and a bad time to seek funding to grow your business. First, you must understand that businesses do not grow with time, but rather with funding, and more importantly with an acute ability to obtain and manage business funding.
The most common mistake small business owners make is closing doors because of lack of funding, and not exploring their options full circle. Your search for business funding should not end with a “denial” from the banks, you should always seek alternative financing, such as a line of credit or merchant cash advances as these alternatives can help grow your business and do not require as much documents and credentials as banks do.