Can you image a way to finance your small business’s working capital needs — like purchasing inventory, supplies, components, labor etc – and not having to pay out a dime to do it?
Well, not only can it be done but you might have the ability to do it right now.
Take a look at start by looking at working capital. Working capital is essentially money that a business uses to manage its operating period. A retail business needs stock to sell. It purchases that supply up front – then works on marketing those products over the coming days, weeks, months, etc . But , the business enterprise cannot pay for that inventory until it sells those items. Thus, in the mean time, it has to expend some working capital to buy those products until it can market them and recoup its cash.
The same with service businesses. They require materials, supplies and even labor to get a job done for a customer. But , the company does not get paid until that work is done. However , it still needs to cover those materials and wages in the mean time. It does together with its working capital – paying out up front and getting reimbursed when the job is done.
Lastly, working capital for the manufacturing business is its existence blood. The business receives an order and has to purchase needed materials to accomplish that order for the customer. In addition, the business has to pay for utilities, supplies and labor to convert those materials into a finished product and it has to do all of this before it will get paid. Thus, it has to have functioning capital on hand or it has in order to refuse to take that new purchase.
Now, most small businesses, instead of using their own money, like to apply for bank lines of credit to cover their working capital or operating capital needs.
This is because that they offer a great benefit such as the ability to draw on, use and after that pay that line back throughout every season – as it earns revenue from the operations.
However , bank lines of credit – especially unsecured one – are extremely hard to get these days. Banks and many other small business lenders either no longer provide lines of credit or make them too hard in order to qualify for. Plus, if you can get one, they will charge high interest from the moment a person draw the line as well as huge charges just to have the line available.
And, if you can’t get a bank line of credit, what do you do then?
Well, you bootstrap of course and if you do it right — you can get all those same benefits with no of the cost.
Bootstrapping Working Capital
Bootstrapping is about using personal resources to start, grow and manage your small business. It comes to businesses that have no other options — meaning that they can’t get business loans. So , they turn to personal resources — like savings, home equity or even personal credit cards. And, it is the latter that will provide the greatest benefit for working capital.
Credit cards – private credit cards – are used by almost 65% of all small businesses (not simply new businesses but all little businesses).
The reason is that these cards provide:
The same ability (benefit) as bank lines of credit – meaning that you can draw on the credit card line, pay it back plus draw again.
They are so much easier to get then business loans.
They are unprotected – so no collateral is required. If you want to read more on 소액결제 현금화 look at our page.
They can be used in your business to protect your operating capital needs.
Many personal credit cards do not have annual charges or any fees for that matter. They do not need to be zeroed out each year (meaning that you don’t have to pay them off and replay every 12 months). And, several provide cash back or other benefits – all things that you cannot or will not get with a traditional line of credit. But , their greatest benefit is that they provide billing cycles and grace periods before interest is charged.
Many credit cards have a 30 day billing period. That means that if you make a purchase nowadays, you will not get charged any attention until after the billing cycle is completed. Thus, let’s say that your billing period ends on the 15th of each 30 days. Now, if you make a purchase on the 16th of the month, you will not be charged attention on that purchase for at least another 30 days (until the fifteenth of the next month). And, if you pay that balance in full prior to the 15th of the next month – you will not be charged any interest at all.
Extra, many credit cards also offer a 25 day grace period to pay after the billing cycle ends – improving the time until you get charged interest or have to make payments.
This means that you can make purchases on your card and, not only do you not have to pay for those charges for almost 55 days (almost two months), but you can use that time to run throughout your operating cycles, get paid from your customers and pay off those purchases : before you get charged any interest in any way – and as long as you pay that card off in full, it will cost a person nothing.
Credit Cards For Cash Flow
Take a look at look at some examples:
A retail business needs to buy $5, 000 within inventory and plans to sell these products over the next 30 days. However it does not have the cash on hand. Therefore , it puts those purchases on the credit card, sells the inventory over the next month. Collects payments from customers – say $15, 000 as their mark up is 200%. After that before the card payment is due, take $5, 000 from those sales and pays off the balance. In this case, they covered their working capital requirements and did not pay a dime in interest or fees for it.
A service business has a new consumer that will pay $20, 000 to obtain a job done. To do this, the business will have to purchase $10, 000 in materials and added labor to complete the task. The company does not have that cash on hand and puts those charges on the credit card – completes the job within the next two weeks and collects payment from the customer. It then, before the end from the credit card’s billing cycle, pays the balance off with part of the customer’s payment and ends up paying out nothing in interest or fees.
Lastly, a manufacturer needs $7, 500 in raw materials to create $30, 000 in finished product it has customers lining up for. But , it does not have the $7, 500 readily available and uses it credit card to pay its suppliers. Then, when the manufacturing run is done and the business gets paid – it promptly takes care of the card’s balance and pays no interest, financing charges or fees.
And, there are as many good examples as there are small businesses needing working capital to grow their companies.
Tips To Success
There are two important factors here:
You have to be able to full your business cycle within that one month billing period. If it takes you more time then that to get paid from your customers – then you will start to accumulate interest. However , paying interest for a month or two may not be that bad given that if you did not come up with the operating capital in the first place, you would not be capable to get the inventory or materials required and would have to turn away individuals customers. (Just as long as you can gain more from the job or purchase – then the product and any financing would cost).
Be able and willing to pay those charges away in full each month – when compensated by customers.
There are times that will banks and traditional business financing is not the best option for growing smaller businesses – especially if those banks plus financing companies keep denying loan requests.