Part of the issue with running a startup is figuring out how to keep up your monthly expenses while waiting for your sales to explode. After all, if you can’t pay the bills, you won’t be able to sustain and grow. It’s difficult to pinpoint exactly what you will need at various points and a lot is dependent on how quickly your offering explodes in the marketplace. That’s both good AND bad…good because you have a lot more incoming funds to line your bank account and bad because you need to maintain momentum while meeting increased customer demand. Sales may fluctuate from month to month as well and you need to have enough cash on hand to keep the lights on, even during the lulls.This is where working capital comes into play. In layperson’s terms, it’s basically the money you need to pay your operating expenses – the things you have to pay aside from your development or manufacturing costs. These expenses include administrative, legal, insurance, office overhead, salaries, payroll, taxes, transportation…the monthly bills that recur without fail, independent of how many widgets you produce or sell.
Some newbie CEOs fund their businesses using credit cards. I might have been one of those at one point…let me give you a bit of advice. DON’T. DO. IT. 0% offers look like loans with attractive terms but they expire. It’s tempting to use those blank checks, I know. But there are better ways to manage your finances.
Small business loans? Um, okay, if you want to pay back insanely high interest rates. They are also extremely difficult to secure AND you practically have to hand over your firstborn as collateral. Just a little more added stress to deal with. No thank you!
You may also have the discretionary funding available for personal investment purposes. If that’s the case, good for you! Not everyone has that luxury. But don’t get too discouraged. There are other options available.
A revolving line of credit is actually a really good way to mitigate some of the risk related to keeping your business solvent. You use what you need when you need the cushion and pay back only what you’ve spent with flexible terms, without having to worry about high fees or high interest rates. You can pay the money back as a lump sum or broken out into monthly payments at a set rate. You may want to create your own unique repayment schedule. You may only need funds at crunch time while you’re waiting on receivables from slower-paying customers. A revolving line of credit gives you steady access to cash when you need it most.
Kabbage is a company that helps put small business owners in touch with the funding they need. Low interest rates and flexible repayment options? Yes please!! The application is quick and simple – you can get approval in minutes and the funds are generally available to you upon approval. Besides all that, they have a really cool logo. And you should know by now I’m a sucker for a good logo. =)