The business world is full of examples of companies that had no idea what to do with large sums of money. The different chapters of bankruptcy are proof of that. If you ask any business Do you need more capital? you will be hard pressed to find one that said no.
If you follow up the question with Do you know what to do with more capital? most would think they know the answer but it is not always the case. They would do something with it but it doesn’t always mean it is the right thing. Proper money management is crucial to the success of your business. Get on track now with these simple steps.
Understanding Capital
Your first understanding about capital should be “it doesn’t solve problems.” This truism has been proven by people and businesses alike since time immemorial. So your goal should be to understand your business and define your needs.
If you truly understand your business you should be able to define what the business needs in order to be productive and profitable. If the infusion of money is used for working capital and you are not seeing any results from what you produce start looking for what type chapter of bankruptcy you are going to be filing.
Your Industry
If you are producing widgets and the market for widgets is depressed, making more widgets is not the answer. When the market is depressed and there is no growth. Getting more capital can help you sustain a slump if you believe the market for widgets will pick up before you need more money.
You also have to remember about your credit rating and the terms of borrowing money. The capital you accept can prolong your recovery and if there is not a strong recovery you can remain in a slump for quiet sometime.
Seasonal And Cyclical Businesses
When a business is seasonal or cyclical, accepting an infusion of capital is par for the course. Financial institutions make loans to cyclical industries as an accepted part of the business and make consideration based on this fact for these companies.
The Business Plan
What happens to the business plan you wrote when you opened your business? A large number of businesses forget about their business plan in the face of adversity and start to “wing it” which is a term for liquidation sale in the not too distant future. Is it possible to completely reinvent yourself from one industry to another? Yes, but that reinvention requires a well thought out business plan. Go back and take a look at your business plan and see where you have veered off and determine whether new capital will help you right your ship or only delay the inevitable.
The Talent
We know what happened when Steve Jobs left Apple and we know even more about what happened when he returned. You can not underestimate talent and if you are the owner you can not let ego get in the way of admitting there are countless people out there better than you.
Spending capital on the right talent can help your company tremendously and guide it in the right direction.
The best thing you can do when you get an infusion of capital into your business is not to spend it right away. Go over your business plan, talent, industry and above all, understand your business and define your needs.
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