Often when we are speaking with newer business owners or first-time government contractors and discuss the need for working capital, there is an awkward hush that shrouds the room. In our society, conversations about needing money and taking on debt carry a perceived negative connotation and promote discomfort in the process.
It is as if the idea of needing a loan reflects poorly on not only the operating capability of a business but can even feel like a personal affront. Why is that? Where did the stigma come from considering no successful business or entrepreneur is without growing pains, that they can and do require borrowing other people’s money to cover expenses?
Talking about finances is personal. Period. We get it. But borrowing someone else’s money for a brief time to cover operating costs and stay ahead of a shortfall is just a smart business practice. It shouldn’t instigate insecurity but instead should instill confidence that you are still making a profit and being smart about your cash flow. Let’s take a look at the benefits of short-term, strategic debt.
Access to Working Capital
There are numerous options available to a business in need of working capital. Depending on your experience, financial performance, and sometimes even what industry you are in, accessibility becomes available at different prices and in different stages of your business journey. The need for affordable and flexible access to cash flow is the #1 issue of a small business.
It is only taboo if we choose for it to be because it is the common bond that unites the SMB community. It’s a choice you will likely have to make: Take from your own savings or borrow at a cost from someone else. You can even give up a piece of equity and additionally a portion of your potential revenue to cover this gap. It just depends on why you need the capital and what best fits your specific need.
Breaking Down the Stigma
Debt becomes strategic when it is used in correlation with a vehicle that provides accelerated growth for your business. For instance, when you are awarded a government contract for $1M, you should not expect the entirety of it as revenue, correct? Portions will be allocated for operating expenses and payroll, which will eat into what you may need to purchase materials, or ship goods to satisfy an order requirement at the onset of your work.
It is not news to a GovCon that you may have to make it through 2-4 payroll cycles before payment to you is remitted. With payroll allotting for the majority of your operating costs, this can cause a catastrophic shortfall that can follow you throughout your contract and even prohibit you from growing your business.
Financing With a Plan
Choosing to borrow someone else’s money for a small fee will not eliminate your ability to profit in the end. It will allow you to stay ahead of your expenses and still come out on the other end with a profit.
This strategic process is analogous to a revolving door of opportunity. Why? Because access to a cash flow cycle with the right lending partner will allow you to continuously build and grow over and over again while selling off equity or liquidating your assets will only allow you to see the potential but won’t allow you to feel the reward of the hard work for yourself.
To quote the great poet, John Donne, “No man is an island.” Sometimes, it takes a little collectivity to generate the power to succeed. Don’t let your pride stand in the way of a discussion about borrowing cash to get ahead. It just may be what separates your business from your competitors.