Money Tips
Financing Your Business: Giving (and Taking) Credit Where Due
" Having a basic knowledge of . . . financing options is an essential skill needed by today’s business owner. . . Without it, the failure rate increases dramatically. Lack of adequate capital and failure to apply basic financial management techniques is the number two cause of business failure. Poor overall management and lack of a focused marketing plan are the first and third reasons . . . "
Peter Linington
Vice President, CIT GROUP
From "Financing Your Business" Chapter 5
Fashion for Profit by Frances Harder*
http://www.fashionforprofit.com
Who doesn’t need more money? But knowing where and how to find the right credit to get you over downturn bumps and sluggish cash flow can be time consuming, tricky and risky. Invest first in the time to gather sound advice from your bank officer, accountant, investors, business counselors, local Small Business Administration and online and other research sources. Here’s just a bit more than two-cent’s worth of financial tips to make dollars and sense:
- Start the Money Search. Better to know where to get cash before you need it to keep your business going. Even if you’re coasting along, be prepared and search for sources to sustain cash flow. Check out free information online about commercial loans, credit scores, equipment leasing, cash advances, working capital, accounts receivable financing and protecting your personal credit. Start at a general information site that provides lots of information and objective options, such as http://www.businessfinance.com (over 4,000 sources of financing!)
- Know Your Banker. If you do not already have a personal business relationship with a bank officer at your branch, foster one. The more the banker understands you and your business goals, the better the opportunity for the bank to adapt its services to your unique needs.
- How Much is Enough? The answer to that depends on the answers to a lot more questions lenders will ask. Be prepared in advance with thoughtful answers. What’s the purpose of the loan? How much personal debt do you have? How much capital is invested in the business? What personal and/or business collateral do you have? Can I see your business plan? How and when can you repay funding? What is your cash flow? Do you have a CPA, attorney, life and liability insurance? What is your business experience? What are your past business success stories? Is it circumstances, setbacks or growth opportunities that require new financing?
- A Partner May Offer More Than Additional Debt Can. Instead of incurring more debt, consider selling equity (ownership) in your company. If you find the right partner, he or she can offer you more than just added capital. Look for talents that complement your current team. A good partner is a gift. The rewards can save your business and provide new opportunities. Instead of a hands-on relationship, there are also venture capitalists that will silently invest in your business, potential and vision for a percentage of profits. Both options could be a better solution than borrowing from lenders.
- Deal with Suppliers. Put creative wheelin’ in your dealin’. Part of financing your business is the history, relationships and payment terms you establish with a variety of suppliers that provide your goods. Earn a relationship of trust by paying on time, over time. Then, if needed you can ask for longer payment terms. Delay payment as long as possible without incurring added charges or jeopardizing trust. Even offer to pay a bit more for fabric and other goods if you can take longer to pay. Such deals can be less expensive than loans and credit lines. Bartering is another option that has gained acceptance in these recessionary times. Can you offer goods or services in exchange for something you want from your suppliers? If you approach negotiation from a position of trust, fairness and teamwork, both parties can give-and-take together and keep business on track.
- Keep Ship Shape. "Don’t ship more than you can afford to lose," advises Kenneth Wengord of FTC Commercial Corp (www.ftccc.net ), a factoring operation specializing in apparel. In shipping orders, protect yourself in advance by not letting greed cloud reason. Don’t over sell or over ship. Retailers are asking clothing manufacturers for credit and merchandise returns. Remember, you are not a banker. Wengord cautions, "Don’t ship C.O.D. If you have concern about payment risk, request payment by credit card. If the retailer is slow in paying, and you assess that the issue is timing of payment versus not receiving payment, then ship in limited amounts. Make it a merchandising/sales decision, not a credit decision."
- Don’t Get Over Your Head. Reduce Overhead. In a sink or swim cash flow, Wengord cautions apparel manufacturers to "keep your overhead as low as possible and keep your inventories lean." More careful planning can keep you from buying too much inventory that you have to sell off. Overhead adds more employees and builds an infrastructure. But when the market turns, you can’t turn it off fast enough. When that happens, a brand with lower operating costs can come in and beat you in price.
There’s so much news about economic woes, we need to pull together and communicate openly with our vendors and retailers to come up with innovative solutions to credit, sales, costs, and selling both at the wholesale and retail levels. What have you found to be credit worthy solutions? Have you discovered your silver linings? Let us know. Email Earnshaw’s Marketing Director David Gaunt, dgaunt@symphonypublishig.com.
* Special thanks to Frances Harder, president and founder of Fashion Business Inc. (FBI) and author of Fashion for Profit, which was a reference source for some of these financing tips. FBI provides the fashion industry with resources and business education to turn business into a profitable reality. Check out the website for services and seminars. www.fashionbizinc.org.
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