Page 193 - Budgeting for Managers

Budgeting for Managers
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of credit were easy to get if they were backed by accounts
receivable. There was good reason for this: if your com-
pany runs into trouble or closes, the bank can take over
the accounts payable and collect the money without try-
ing to run your business. In the last few years, with more
customers paying by credit card, accounts receivable is
much lower, so it’s harder to get large lines of credit.
• A loan. If you have a record of good sales and high net
revenue during your busy season or if you have some
asset (such as a building) to use as collateral, you can get
a loan that will get you through the lows.
• Investing in your own business. If you have enough extra
money, it can make sense to invest money in your own
business. However, it’s a very bad idea to use up your
own savings or put up your house or other essential per-
sonal assets to support your business. It’s good to have
confidence in yourself, but it’s not good to put all your
eggs into one basket.
• Having friends invest. This is generally not a good idea, if
you want to keep your friends. Remember that 80% of
small businesses go under in the first three years. If you
close the business and can’t pay them back, you will lose
a lot more than money. If banks or investors wouldn’t give
you money, why would you ask friends to take the risk?
Friends and family who invest not expecting much
chance of return are often called angels.
• Venture capital. Venture capitalists are people who make
a business of investing in new businesses. They know the
risks and they are looking for a high return. Small busi-
nesses are often too small to interest them. In addition,
there’s a chance that you will lose control of the business
if you can’t deliver the rate of return the investors expect.
• Stock offerings. If you are ambitious, you might look into
an IPO (initial public offering). This offers the public stock in
your business. Regulations are complicated, but there are
some interesting alternative choices that can simplify the
process, such as offering stock only within your home state.