It is understable that most of us start our businesses by acquiring debts in the name of Capital, Loans, Fundings, etc. But be careful not to fall in the trap of religiously acquiring this debts for your business to operate because it can’t be how wealth is built.
Capitals, Loans, etc are classified as Liabilities, so this means your business is obliged to pay the funds back which they charge you interests even.
Once you borrow money for your business you need to guarantee that your Sales profit will be able to pay back the borrowed money and still left with cash in your business to be able to continue with business operations, that way you are guaranteed that when finished paying the debt you will be the independent owner.
The unfortunate thing and injustice that you can do to yourself and business is that when you are unable to pay back and the business is not trading well, you will opt to selling the business or portion of it.
As much as selling makes a lot of sense at that time but in actual fact it will mean that you will be losing some part of the business that you have worked really hard for.
When you have started your business with borrowed capital make sure paying down the incurred debt is the critical first step.
The main objective of business is to make PROFIT. The profit that we are going to use to pay the business debts and grow the company. Business has to be surviving on it’s own sometimes, it should not always depend on borrowings, especially for smaller things. For example: If you find yourself borrowing money to buy stock every time then know that there is some unhealthy discrepancy in your business, as that will simply mean if you are not given any credit there will be no business running for you. It is no Business sense.
It is advisable to do your homework before taking a business loan. Work out your Operational Cash Flow appropriately according to the nature of your business. The two most factors that you need to focus on when drawing your projections should be Sales and the Cash Flow because they will assist you in making the good decision.
Do not get into the habit of growing your business on debts.
Compiled by Dikeledi Seoloane – On behalf of Matsobanemetja Business Consulting (Coaching Division)
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Matsobanemetja Business Consulting Pty Ltd 