Business Startup - Stage 4
Start Up Scale Checklist
Cash flow is tight. We need working capital
Ok. You have got your business going. You have some customers and can show income (or possibly more precisely you can show contracts).
You have a good business plan that shows how you intend to get more customers and more profits. And it shows quite clearly that you need more cash to fund the time between building your products and selling them (and getting paid for them).
There are two broad scenarios here.
A) You have started a business but your customers pay you much slower than the time you have to pay for the goods or services.
If your business is basically profitable you should eventually build up enough funds in the business not to have a problem. However at the beginning you will have to spend a lot of money paying for products that you have sold but not yet been paid for. Under these conditions a bank or factoring company may lend you the money you are waiting for from your customers. This means you can get 75% or more of the cash as soon as you have invoiced for goods – and this can be 30, 60 90 or more days before you would otherwise see it. This is called factoring or invoice discounting.
B) You have started a business but you have to pay people to build the product before you can even sell it – and then wait for the customer to pay you the money.
This means you need investment or a longer term loan.
Investment means that you effectively sell a portion of your company (the equity) for a cash injection. The investor takes the risk with you that your business will succeed and both he and you will share the rewards then.
A loan just means you pay it back with interest and you keep all your company whether successful or not. Loans (especially risky loans) are hard to get. After all why should a lender take the risk that you cannot pay it back without sharing the rewards if you do.
Both ways give you working capital, i.e. money you can use to keep the business going.
Try Banks; Factoring; Loans; Investment
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