Every year hundreds of entrepreneurs start new businesses. While their business’ nature and size might be different, one thing is for sure; they all have to acquire funding to finance and operate their company. After all, running a business comes with various concerns and obligations, and financing ensures that you don’t fail when others around you are constantly closing up shop. That said, one of the biggest reasons for a business’s failure is under-utilization of financing or lack of capital.
Today, we will focus our attention on the latter. As you launch and operate your business, you’ll have various financial requirements to ensure your business’s day-to-day operations run as smoothly as possible. For instance, you were paying for inventory, investing in an employee recruitment program, employee payroll, vendor payments, etc. Sure, you might have some money saved on the side to cover for rainy days.
Still, your emergency fund will eventually run out, and you’ll have no choice but to close your doors. If you’re a business owner whose business is on the brink of failure, listed below are w few ways to finance your business if it’s failing;
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Perhaps one of the most common ways to fund your business is to utilize your savings. Ideally, you will have some extra money tucked away in your saving accounts for emergency purposes, which you can use to fund your business if it’s about to go belly up. However, a big problem with this type of financing is that you can only spend the amount of money you have.
So, a wise approach would be to utilize your savings along with a home equity line of credit or your retirement plan. All of these count as personal savings and will suit you well in case of business emergencies. That said, if you don’t know how to acquire a home equity line of credit, consider speaking to a financial advisor or accountant who has completed an MBA with accounting concentration or has relative experience in the accounting field.
Family and Friends
Most business owners contact their family and friends during financial emergencies. It is a no-frills way to finance your business as your family and friends will want to help out, considering they don’t want to see it hit the bricks. However, some might be reluctant to give you their hard-earned money. For such family members and friends, offer them a share in your company in return for a small business loan.
In addition, ensure that you and the investing party sign an agreement to seal the deal and make everything official. Moreover, consider educating your friends and family members about the risks involved. Lastly, ask them to invest the cash that they can afford to lose. Then, if your business goes belly up for some reason, your friends and family won’t have to deal with any financial repercussions.
Angel investors are a group of executes or private individuals who invest in companies through an equity purchase. Besides financing, they will also provide you with guidance and expertise to keep your business away from financial failure.
However, enticing angel investors to put money in your failing business can be extremely difficult. That said, you can provide them with an effective exit strategy to ensure they recoup their investment in case you have to liquidate your business.
Angel investors are a perfect option if you’re looking for financing as well as industry contacts and experience. Furthermore, hire a CPA or a specialized attorney to broker and structure the equity sale if you don’t want to end up with a diluted stake in your business.
Most small business owners have never heard about the SBA microloan program. However, it’s an easy way to fund your business if it’s failing. You can acquire as much as 50,000 dollars in loans through the SBA microloan program. That said, the SBA doesn’t hand out loans directly; instead, they utilize intermediaries.
Most of these intermediaries will require training in return for a loan. However, you can utilize their training and assistance to get out of a financially challenging situation.
Credit cards can extend your cash flow and provide you with an easy way to finance your failing business. You can use your credit cards to acquire rewards, earn discounts, and pay suppliers. However, the disadvantage of using your credit cards is it’ll affect your credit score. In addition, some credit card companies also offer cash advances. You can use them to pay vendors and suppliers. That said, cash advances can be costly. Still, it is an avenue you can utilize to finance your failing business.
Factoring is a type of financing that has recently gained popularity and is now common amongst small businesses. You can use factoring to finance your business, especially if it is experiencing cash flow issues due to clients not paying their invoices on time. However, you can only acquire funding through factoring if your business has ties with government or commercial clients with good credit scores.
When used effectively, factoring will drastically improve your cash flow and allow you to work with more clients. And possibly, get your business out of a financial rut. After all, a cash-flow problem is one of the biggest reasons why businesses fail.
The financing options mentioned in this article come with various risks and can derail your business’s growth if not used smartly. However, to ensure you make the most of them, you need to keep a close eye on critical metrics, forecasts, gross profit margins, and, most importantly, your cash flow.
Consider talking with a professional accountant or financial advisor before you go on and acquire a business loan to stop your business from failing!