It is estimated that 80% of all startups fail within the first 18 months. Capital or cash flow is the lifeblood of all businesses, without it, you die. The same way that human beings can start grasping at straws when they feel death is imminent, so can business owners. Sometimes, the choices you make in trying to save your business can simply take a bad situation and make it even worse. Lines of credit are an important part of doing business and can mean the difference between life or death for many businesses. How you manage that debt, however, can also determine whether your business thrives or goes under. Here are three tips for entrepreneurs for how to manage debt.
1. Use cash, not credit
Unless you have a string of successful startups under your belt, chances are good you will be your first investor and maybe the only investor in your business for some time. When you do start seeking investors, the first thing they will want to know is how much you have invested personally. The more you believe in your business, the more likely you are to be heavily invested in it. Being invested in your business is a good thing, but being heavily leveraged is not. If you invest cash in your business and your business goes under, then you lose your cash but you don’t have to climb out of debt before you can start over. As tempting as it can be to use credit cards to get your business up and running, it is not a good idea.
2. Apply for a loan early
One of the biggest mistakes that many entrepreneurs make is not applying soon enough for a business loan. While applying for a business loan is far more difficult than simply opening a line of credit, it will pay off far better in the long run. A business loan of a few thousand dollars may not do a whole lot to help get your business up and running, but it will help you start building a good track record with banks. If you wait until you need a major influx of cash to apply for a loan, chances are good you will not get it. If you apply for a small loan before you really need it, however, you give yourself a far better shot at getting a bigger loan when you really need it.
3. Manage your expenses carefully
Another of the biggest mistakes that too many entrepreneurs make is investing too heavily in things they don’t really need before they are ready for them. It can be tempting to invest heavily in the “trappings” of business by leasing a suite of offices or leasing a company car to try and give the appearance of a thriving business before you are really are. In truth, it is far better to just keep working from your mom’s basement until your business is really ready for offices rather than going into debt in order to keep up appearances.
Whether you are looking for capital to get your business up and running, a business loan to expand or are already heavily leveraged and need to get on solid ground again, Second City Advisors can help. Second City Advisors can help you understand your options to help get or keep your business on solid financial footing
