Time to time I always get requests from other startups. ‘Sir may I get a soft loan I want to boost my business’. If only I can get a financial top up of just $1000 I will increase my stock. I feel like my stock is too small hence my profit is limited. There is good market only my stock is too small and it will take time for me to fully grow to the capacity that I should.
Don’t be fooled by such a feeling it’s normal. I used to feel that way until I asked myself one big question, Why is that I always need a soft loan. What is happening to the little profit that I am getting.
In certain times, you will be offered a big order that is bigger than your capacity, and you feel like if you can only get a financial top up for that one order, you would have crossed and you will never lack capital. But eventually you find yourself in the same situation. This circle will for ever be there until you understand what exactly your problem is. The problem is not lack of running capital but your planning.
Here is how I dealt with the problem, after I realized that in life no one will give you that money when you need it, or even if you are given, it’s either you will struggle to pay it back, or you will be still want more financial top up over and over again.
The first thing is to understand your profit margin, be very discipline to always plough back into the business. The reason why you may feel the need for a soft loan is because you are using your profits somewhere else not invest back into your business.
It is very painful and dangerous that most people ignore that. They act as if it’s not important. People don’t ask themselves where their profits are going. They give a blind eye but still keep looking for a loan.
Here is a simple example that should help you understand this topic. If you are into buying and selling of eggs, You ordering your eggs at $10 for 100 eggs and you are selling at 30% profit margin.
This means for the first order after selling your eggs you will get $13.00. If you repeat the same order 10 times getting a profit of $3 per every order you have $30 as gross profit before you remove running costs that could be transport and phone costs.
But still you can recognize some profits there. This means the business has a good potential to grow. So what happens then for such an entrepreneur to fail appreciating his business.
It is because of misuse of the funds. The same money from the business is used to buy bread at home, used to pay rent, used even to buy a new phone.
Today let me be a bit tough on you, hey no any amount of reasoning you can ever bring in this topic. Money for business should never be used for personal things. You may reason in any way you like, but it’s wrong and provokes business rules.
What you need is to have a salary. Regardless of the size of your business. If you have a salary it will fall under your expenses, therefore you will be able to see if your business is making profit. This will help you to live a lifestyle that suits what you can afford.
As long as you use business funds for personal things that doesn’t profit there business, then forget about success. You will be forever stuck in a circle of needing a loan and eventually you will shut down.
The best advice I can give is do what you can afford, focus on growing your capital by continually ploughing back to the business. If you get a bigger supply that is bigger than your financial capacity allow it to pass you and concentrate on growing your business with what you can afford. Next time business will always come don’t worry. Other opportunities always come.
If you get worried about that one opportunity and concentrate on winning it, you either going to borrow money, supply but if the payment delays to come within just 2 weeks, you will be forced to close your business or reduce operations. The money that you will loose in the time while waiting for your payment could be more than the profit you are hoping to get from that deal. Which means by the time you will receive your payment, you are already in deep debts. You still need to pay off the borrowed money and still need the running capital for your normal business to progress.
This is how most people end up closing their business. Don’t be greedy, don’t rush success, allow your business to grow one step at a time. In business opportunities always come. Don’t force yourself on one opportunity if you are not in a position to participate.
By B. Marambire
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