Why should you use working capital to help grow your business?
There is a multitude of reasons why you should take on a working capital loan to grow your business but it all starts with cash flow as cash flow is king. It also begins with your risk tolerance and the speed in which you want to grow your business as well. If your business is in a trough, we will save that for later. So, let’s start with the first two reasons, cash flow, and risk tolerance. As a business owner you may be thinking my cash flow has been steady over the past few years but I want to increase my revenue and ultimately increase my net income, then there is a risk that comes to play if things don’t go right, you will have doubts of what if my product doesn’t sale quick enough or what if I can’t get enough customers to service. Well, you signed up as a business owner and an entrepreneur which was a big risk, to begin with, and any level of risk comes with a degree of failure or a degree of reward depending on the magnitude of the risk of reward.
My best advice in this is to follow your instinct and challenge yourself enough but not to the point where you can’t sleep at night unless you want that. Not everyone was meant to be Elon Musk or Jeff Bezos who operates with a large amount of risk and working capital. An injection of working capital will accelerate the growth of your business but everything needs to be calculated. For instance, if you are running an advertisement, you are going to need working capital for those ads but you will also need the employees to fulfill the needs whether it be product or service of the company.
In business, the fundamentals and concepts remain the same when it comes to achieving higher revenue and that is selling more of your product or service. Within those fundamentals and concepts in selling your product or service comes with more employees, more advertising, more management, more equipment, technology, etc. Although the reward will be higher the more you scale, the risk will be higher as well.
For example, your business has been doing $2,000,000 annually for the past 2 years. You want to increase this number to $4,000,000 annually, Whatever equipment, advertising, service, technology product, etc. that took you to get to $2,000,000 you will have to double down on that through calculating risks. We know as entrepreneurs there are risks but we push through that adversity because we want to achieve the reward. So, to wrap up the two segments of cash flow and risk, these are the two main reasons to use working capital to help grow your business.
Leading back to the third reason which was mentioned as your business being in a trough, where you are cash flow negative. You first need to strategically analyze your business on both the inflows and outflows of the capital. You don’t get many chances in businesses but an injection of capital to get you off a trough followed by a well-executed plan can help the start of the growth of your business.