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4. Understanding Your Business Needs Before You Choose

4. Understanding Your Business Needs Before You Choose

Instead of dealing with interest rates every month on top of hidden fees, you get a one-time, flat transaction fee. Even better, no liability or debt shows on your business’s credit score and history. All you’re doing is getting paid faster for revenue you’ve already earned.

Are your needs short-term or long-term? Will the end result be worth the extra money you’ll pay in fees and interest?

As a rule, short-term funding requirements shouldn’t have a long-term payback solution. That’s why government grants and other types of grant money are so attractive.

How Where You Are in The Life Cycle of Your Business Matters

If you can’t qualify or don’t have the time to invest in applying for grants, use your business’s phase to help you decide what kind of financing you need.

Phase One: The Launch

The first phase of a business is the launch. This is where you’re still in a startup, and you’re collecting funds to get your business open and cover overhead.

However, it also refers to the time when you launch a new product or service since you’ll be investing more funds than you’ll likely be receiving.

During this phase, it’s hard to be picky about your loan options because many lenders won’t approve you. Still, be cautious about getting into unreasonable repayment terms.

Phase Two: Growth

The next phase is the growth period. Here, you’ll have increasing sales growth and begin to see a profit. Profits won’t be as high as sales because of overhead, but you’re finally past the break-even numbers.

Your cash inflow is more than the outflow, and you have a wider choice of financial alternatives if you plan on growing your business further.

Phase Three: Shake-Out

Phase three occurs when you have increasing sales, but they’re not spiking as high as the growth period. This is called the shake-out phase.

With a saturated market and other competitors, you have to do something to stand out and increase your profit margin. Cash outflow begins to exceed inflow, and you may need to invest in a financial solution for working capital.

Phase Four: The Mature Business

Phase four is a mature, solid, dependable business. At maturity, your sales will decrease, and profit will become steady. Overhead is consistent.

It’s time to step up the traditional options and develop a new product or service if you want to get back into the growth-level profits, and a financial solution can help.

Phase Five: The Final Decline

To avoid this period, it’s crucial to pay attention when you’re in phases two through four and can still reinvent your business’s edge.

5. Putting it All Together: How to Make the Final Decision

Using the data to drive your decision is essential. Most business owners will look at the easiest way out of their current cash crunch. By putting together your business’s life cycle stage and your goals, you can make the most intelligent financial decision.

Data Driven Examples

As an example, if your current life cycle phase is the Shake-Out, it’s time to expand your business. You may be considering opening another storefront or adding a new product, so you need capital.

Your business credit is reliable, but your finances aren’t quite able to accommodate extra expenses. You don’t have an urgent need, so a grant is an excellent choice.

Another example would be a business owner in the growth phase wanting to invest in an amazing sale to grow their inventory. The deal won’t last long, so you need cash fast.

You’ll be able to make a profit out of it quickly, so a short-term loan that has to be paid back within a year is fine with you. Go for it, as long as the fees and interest won’t be more than your profit from the sales.

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