If you are making big borrowing mistakes here are some tips to steer clear of a financial collision.
1. Are you trying to make a market with leverage? Borrowing can’t create demand for your product or service. Business loans can only create positive or negative leverage. If you operate at a net loss the sword of negative leverage will cut deep.
2. Are you trying to sustain a hurdle sales growth rate by piling on the debt? Expanding into markets that return poor margins is like filling your business gas tank with dirty fuel. Make sure you drive your borrowing chariot like a financial gladiator by avoiding the most common borrowing mistakes.
3. Represent yourself well. Remember who you are and where you came from. You need to be able to show that to your banker too. Spend the time and money to have a professionally prepared business plan and financial statements.
4. Don’t run out of gas with your cash balance. If you get into financial trouble from an unexpected event like an important customer bailing out or the death of key person in the company your financial legacy will be impacted. Someone will have to walk in your financial boots after you are gone. Leave a strong financial legacy.
5. If you are not a good borrower, get help! Find someone who has strong borrowing experience and can steer you through strategic borrowing.
You have to know what you don’t know. Take a long weekend away from your business to get some perspective on how you can correct the skid of borrowing mistakes before your business becomes a pile of junk.
Where is your business blind spot?
- Seven Borrowing Resolutions for 2011: The Art of Won’t (proborrower.wordpress.com)
- New York Times: Top 10 reasons small businesses fail (seattlepi.com)
- Solving the Small-Business Lending Riddle (inc.com)
- You’re the Boss: Top 10 Reasons Small Businesses Fail (boss.blogs.nytimes.com)