As a startup, getting a business loan may be your first plan of action for financing business growth and garnering profit. But there are excellent reasons to consider other options for finding capital that can expand your business and increase profit.
For one, it can be very difficult for a small business to secure financing, especially in the early days. You’ll need to prove to a lender that you aren’t a high risk, with financial documentation that shows your company has been profitable for a few years.
When you take out a loan you’ll need to consistently make payments toward the principal, interest, or both, depending on your agreement. If for some reason you can’t make your payments, the problem can snowball from losing the assets you pledged as collateral to more devastating losses, including bankruptcy.
Consider these 3 tips for increasing profits without approaching a lender.
Ask for payment in advance
This option is as simple as asking your customers to pay you in advance of receiving your products or services. Explain that you are changing your payment policies and your new terms are that you receive payment on the first of the month, at the beginning of a project—whatever works for you. As the owner of your business, you get to decide when and how much you need to be paid in order to deliver your products and services.
On a related note, you might consider using a subscription model for a new income stream. Some possible subscription-based services with a recurring pre-paid fee are:
- a password protected website offering valuable info and community for your customers
- a monthly service membership website (i.e. beauty, dry cleaning, home maintenance)
- box kits for DIY enthusiasts (i.e. cooking, crafting, and other hobbyists)
Try Crowdfunding
Crowdfunding campaigns connect individuals with a community of willing donors via a platform such as Kickstarter, Fundable, or Indiegogo in exchange for some reward.
In addition to providing an inexpensive source of financing, crowdfunding allows entrepreneurs to gain market validation for a new idea before overinvesting. It also provides an opportunity to market to potential new customers. You’ll be able to start selling before your new product or service is ready so you can continue to avoid the small business debt trap.
Form an alliance
Partnering with other businesses is mutually beneficial. Each company can increase its sales by introducing each other’s products and services to their own customers at no added cost. You can potentially attract brand new customers, too, by increasing your range of offerings by way of your alliance.
Likewise, a marketing alliance is a simple strategy where two companies agree to spread the word about each other’s products and services with their customers. Each partner would earn royalties on sales to the other partner’s customers, bringing in easy growth revenue without any additional marketing or advertising costs.
Final thoughts
As you move forward with your next phase of business growth, be sure to touch base with a business advisor. Your advisor should be able to help you update your business plans, choose the best strategies to cut costs, increase profits, and achieve your short and long-term goals, Seeking the guidance of such experts will lead to greater success.
Bookkeeping Confidential can offer you appropriate tools and referrals to help you in your business growth. We also offer full-scale bookkeeping services for small businesses and startups seeking to increase their profit margins. So, don’t hesitate to reach out to us.