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Business Financing, Do’s and Don’ts
Many businesses most times fail even before they’re launched because of lack of financing or inappropriate financing approach. These are important Do’s and Don’ts of business financing you may want to consider before starting your business. And you may still want to reconsider them if you’re running your business already.
- DO your business plan. With a proper business plan, you’ll be able to research and hit the right financial targets and projections. In other words, you’ll eliminate making poor financial decisions and avoid unnecessary expenses.
- DO have a record. Ensure you keep accurate records of your activities, especially financial transactions. Creditors won’t naturally lend to entrepreneurs without first seeing their books.
- DO weigh your options. Who do you want to borrow from? A bank, relative, friend or cooperative? At what interest and payback time? Is there a moratorium (the period between when your loan is disbursed to you and when you start repayment)? Are there penalties for loan default? Are there collaterals? These are very important questions you need to address when weighing your options.
- DO get right amount. Many entrepreneurs over borrow or under borrow, thereby mistmatchjng their financial needs and business goals. It is therefore incumbent on you to borrow the right amount from the right lender and at the right time.
- DON’T spend your income prematurely. Don’t spend the money you’ve not earned. Work with your loan and budget. Match the two figure-for-figure. For example, if you get a loan to finance equipment, don’t divert it into car purchase. This will expose you to unnecessary financial pressure and eventually kill your business.
- DON’T stop pitching yourself. The way and manner in which you pitch your business often determine whether your prospective creditor will lend to you or not. So don’t stop talking about your business and why it is special when seeking business financing.
- DON’T entertain fear. Fear kills businesses as well as their owners in extreme cases. So don’t entertain fear by stopping yourself from taking risks. Calculate your risks, recalculate and go for the best. Risk takers make more money than those who don’t take risks.
- DON’T worry about finances. Worry less about how to finance your business but more about positioning your business strategically for your target market. Spend what you have to get your business running properly. This is what creditors consider before they lend. They believe that those who can’t manage their businesses with little funds won’t likely manage well when they have more funds. They don’t want to lend to people who will waste their money with an inefficient operation.
- DON’T avoid paying taxes. Avoiding taxes, or failing to pay, can ruin your business if appropriate authorities end up finding out. Sometimes, people get jailed for it. So don’t avoid taxes.
Finally, apart from all the above do’s and don’ts, you may want to work with an expert to guide you further so that you don’t make costly mistakes while working on your business financing. There are many of them around, especially your banker.