When should your business borrow money? And yes, there will be times when it's good for your business to borrow. There will be times when it should be avoided.
Planning, attitude, risk, and cost. These are the four things you need to consider when borrowing money for your business.
This weeks episode of I Hate Numbers will cover these topics in detail so that you can make a sound decision about whether borrowing is right for your business. You will also learn how to avoid common pitfalls and mistakes that many businesses fall into when they borrow money for their company.
I want to help you succeed with your business by making sure it's financially stable from day one! So, let's get started on our first topic - planning! To start off, we will talk about what makes a good plan and why it's important to have one before taking out any loans.
Your cash flow forecast is key to any business decision
Firstly, you should not undertake any borrowing decision, until you have looked at your business future. Planning is key, borrowing a British Army phrase, Proper Planning and Preparation Prevents Piss Poor Performance.
Above all you need a plan that has the three key ingredients your business purpose, end goal, and your route map to get there. Convert your story to your financial plan, your future cash flow story. Then decide whether you should borrow money, or not! As a heads up, I have got a FREE cashflow workshop webinar coming up in May, click to find out more.
What is your attitude towards debt and your attitude to managing money? Debt has a bad press. Borrowing money, the right way, and with the right money mindset will boost your business growth.
Those memories of those early days when I started my own business over 26 years ago and I borrowed money are still fresh in my mind.
I was not the businessperson then that I am now and I was running my start up from my back bedroom. More money out than coming in. My head was still hurting making that transition from an employee to working for myself. Cash was needed to keep my dream and ambitions alive.
Borrowing money, on top of using my own savings, and working ‘part time’ fueled my business survival, and growth, but not without the financial and emotional costs.
Thirdly, let’s talk about risk. More importantly, your risk appetite and managing your risk when you borrow money. When you take on debt you take on a commitment, more fixed costs. This will affect your business risk, your operational gearing, what a wonderful term?
Thinking about your attitude to debt. Is it one that's the attitude of others? Have you had bad experiences before with debt? You are cautious about having that happening in your own business?
What is the cost of the loan?
You need to look at the cost of the debt, the investment you will be making. The interest rate charged is the lenders profit. The type and length of the loan, your own credit history, the purpose of the loan, the lenders assessment of the risk they are taking feed into the interest rate. For larger and riskier loans, a lender will ask for your management accounts. Make sure your financial house is in order and your financial records are up to date, Digital Accounting is what you need.
The question, When should your business borrow money? It’s all about P.A.R.C
Planning, make sure you have one.
Attitude, what is yours? Is it one that should be addressed?
Risk, understanding and managing it.
Cost of the loan.
If you do not want your business to go backwards, then you must plan for growth. Borrowing money is a positive way to make your growth happen.
I would love it if you could share this podcast and Number love with your network and help me with my mission of getting your business closer to your numbers, make profit, save tax, and time and strengthen your money mindset.
Numbers are your best friend in business, they won’t lie to you, they provide focus and clarity, lessen your money anxiety.
You do not have to worry about making these decisions alone! Contact us to see how we can help you figure out the question “When should your business borrow money? Our news section, FREE online calculators is there for you. Just click here now to get started!
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