Just because you’re doing fine now doesn’t mean you won’t need capital in the future. In fact, you might already be feeling the squeeze. What do you do if your bank account is running dry? Ask yourself these vital questions before you ask someone else for money.
Do you really need more capital?
It seems like common sense to ask yourself this question, but you wouldn’t believe how many businesses get a bug in their ear about financing and then never give up the fight. It’s almost like fighting for the financing is more important than actually getting it.
Now, of course, if you need the money, you should do everything in your power to get it.
How urgent do you need this money?
Urgency is something else to consider. If you can live without money for 3 months, there’s no need to take out a loan right now. Of course, if you can’t make payroll next week, you might need something like this merchant cash advance.
Gauge urgency based on whether or not your company will not be able to pay its bills on time or will suffer a cash flow crisis if you don’t get the money you need.
What will you use it for?
Again, it seems obvious, but many businesses get money without having a clear purpose for its use. This is especially true for small businesses that sometimes believe having cash on-hand is better than not.
And, while having a cash reserve is a great idea, it’s not great when you have to pay interest for the use of that money. So, know what you need it for, and have a detailed plan that spells out exactly where every dollar will go.
Is your business seasonal?
Plan in advance. If your business is seasonal, like an ice cream business or a deck-construction company or a landscaping company, you might need some cash to tide you over until the next wave of customers come in.
Seasonal businesses sometimes suffer from bad budgeting and bad budgeting can be symptomatic of a larger cash flow problem or a lack of understanding of how to properly plan. If you find yourself not being able to budget for the lean months, consider working with a financial planner, CPA, or a business consultant to get your financials in order.
How strong is your management team?
If your management team is strong, you’ll have a better chance of getting the money you need from a bank or credit card company. If you have weak or inexperienced management, you may not be able to get any funding.
Most companies are somewhere in the middle. In other words, they have management, but it’s not the greatest. At the same time, it’s not the worst. They have a good idea about how to make profits, but they may not be the most financially savvy.
Work on your management skills, hire business coaches, and make better business plans so that you can confidently approach lenders for money when you need it.
David J. Norris has spent the last few years helping small businesses with financial matters. A personal finance consultant, and an enthusiastic blogger, he likes to post his experiences online. His articles appear mostly on business and finance websites.