While poor
management is cited most frequently as the reason businesses
fail, inadequate or ill-timed financing is a close second. Whether
you're starting a business or expanding one, sufficient ready
capital is essential. But it is not enough to simply have sufficient
financing; knowledge and planning are required to manage it
well. These qualities ensure that entrepreneurs avoid common
mistakes like securing the wrong type of financing, miscalculating
the amount required, or underestimating the cost of borrowing
money.
Before inquiring about financing, ask yourself the following:
Do you need more capital or can you manage existing cash
flow more effectively?
How do you define your need? Do you need money to expand or
as a cushion against risk?
How urgent is your need? You can obtain the best terms when
you anticipate your needs rather than looking for money under
pressure.
How great are your risks? All businessess carry risks, and
the degree of risk will affect cost and available financing
alternatives.
In what state of development is the business? Needs are most
critical during transitional stages.
For what purposes will the capital be used? Any lender will
require that capital be requested for very specific needs.
What is the state of your industry? Depressed, stable, or
growth conditions require different approaches to money needs
and sources. Businesses that prosper while others are in decline
will often receive better funding terms.
Is your business seasonal or cyclical? Seasonal needs for
financing generally are short term. Loans advanced for cyclical
industries such as construction are designed to support a
business through depressed periods.
How strong is your management team? Management is the most
important element assessed by money sources.
Perhaps most importantly, how does your need for financing
mesh with your business plan? If you don't have a business
plan, make writing one your first priority. All capital sources
will want to see your for the start-up and growth of your
business.
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