Capital is an important part of business. Businesses not only strive to earn money by selling their products and service but also need to pay for operational costs along the way. “You have to spend money to make money,” as they say. Your bottom line is also the bottom line in the figurative sense, as running out of capital means your business will have to close its doors. Therefore, keeping some capital on hand is essential for day to day operations. Here are a few ways to keep yourself afloat.
Invoice Factoring
Many companies operate by providing a service at little to no upfront cost to then receive payment for their work later on. In these cases, businesses will send an invoice to their client stating the amount of the sale and the time by which the sum must be paid. However, a business may need those funds sooner than intended, so this model runs the risk of leaving your company without essential resources. However, invoice factoring services can provide a solution to this quandary without sacrificing the grace period afforded to clients.
Invoice factoring is the service of having an invoice’s cost paid upfront by a third party, and it means that a business can have access to the money they’ve earned before they would ordinarily receive it. Truck factoring, for example, can bankroll maintenance costs like that of gasoline and repairs well before the invoice would have been paid by the client. Essentially, invoice factoring is the process of transferring the invoice itself to a third party who will collect on it when the amount is due. This is typically done with the help of investors and is a natural extension of the traditional practice of business investments.
Investments and Loans
A business owner has a few options to ensure funding for opening their business, as well. Most business owners invest very little of their own money, for obvious reasons. Opening a business is ultimately risky, and one needs money to fall back on, just in case. Instead, many business owners provide a relatively small amount of capital and seek the rest from a loan officer or an investor. Investors are private citizens, often successful business owners, who seek to increase their own fortune by investing in an up and coming business. Loan officers are bank officials who seek to do the same in the name of their bank. In both instances, money is being lended to a business owner with which to open his or her business, but there are differences beyond that of the person you’re talking to.
In order to secure a loan or an investment, you’ll need to convince the lender. Loan officers are typically less informed about what is or isn’t a solid business idea, so their decision to approve or deny a loan will be based almost entirely on your banking history. Many investors, on the other hand, are established business owners who have some experience in the field. This means that an investor is likely to be more strict about lending money on the basis of your business plan, but this is a good thing, as it means that you’re less likely to end up with a failing business and a debt that can’t be paid. Likewise, the requirements for a bank loan serve the purpose of proving to the bank that you are responsible with money, which is also a good thing. Investors often charge higher interest rates than banks, meaning that investments are often more expensive in the long run, and investors typically demand a percentage of ownership of your company, which also gives them negotiative power.
Businesses need to spend money to make money, but there are several means of suspending certain payments until a later date or recouping expenses much sooner. Using the above methods, you can be sure to have the capital your business needs in order to avoid potential pitfalls and expand your business more quickly and easily.
