Many of us know that in order to be productive, any business needs working capital. But not everyone can determine at what point it is worth attracting additional finances to secure their business. To better understand whether you need a loan or not, we suggest that you familiarize yourself with the following situations, which may indicate the beginning of a difficult financial period.
So, in what situations should we think about the proper use of our working capital when running a small business?
1. You can not meet the needs of the market
If you see that your team began to spend more time communicating with customers and processing orders, most likely, the demand for your products and services exceeds the opportunity to provide them. This is the first sign that you need a loan.
You can use additional funds to purchase inventory, hire additional employees or to expand your range of services. Funding can also be critical to ensure your success in strengthening your customer service system and maintaining your customer base. It often happens that attracting new customers is much more expensive than retaining old ones. Several studies have been conducted around the world that have proven that companies that provide superior customer service can grow 4–8% faster than others.
2. Do not want to pay high interest on the loan? You need a loan!
If your organization has been operating in the market for more than one year, then the high loan rate for you should be in the past. Many companies use the services of refinancing their debts and reduce the interest on the loan. In addition to this, you should consider whether or not your organization needs a loan in order to pay off the current loan debt with a large annual interest. Do not be afraid that the microloans have even higher annual rates, they are mainly created for short-term borrowing money. Therefore, paying it off in a short time, you overpay a completely insignificant amount. A positive credit history will be a plus, which will recommend you in the future as a responsible borrower.
3. You work inefficiently
Your team needs modern and effective tools to be the most productive. So, assess the situation and find out if they have something that will allow you to give all the best for 110%. If something is missing, then for such purchases, just, and may be needed a loan. By purchasing valuable equipment for the company, you can now improve the quality of your work, speed up production and provide competitive advantages.
Also, modernization of equipment and technological process can be useful in order to avoid problems of a mechanical and technical nature, as a result of which productivity may drop. Downtime, which is simply lost while repairs are being carried out, can adversely affect the team spirit and the business process as a whole. Consider in time to maintain the performance of all elements of your organization.
4. Strategic acquisitions within sight, but out of reach.
Right now you can offer a product that will complement your offer, but you may not have enough capital to purchase it. What to do? You need a loan! For example, this product may be any real estate, the purchase of which will allow you to get rid of the monthly rent. Or there was an opportunity to purchase goods with a decent discount, as a result, you get more profit.
5. The company’s visibility in the market is lost.
It requires a lot of effort and money to systematically remind yourself to potential and current customers of the company. If you do not invest money in marketing, then most likely your competitors do it, and thus move into the spotlight for you.
If you need a loan to support your advertising campaigns, first determine the best ways to attract customers, determine the budget and what return you expect from your investments. Rate internal and external statistics. Instead of expanding the campaigns, you can hire additional staff in the sales department, which will help your business to fly.
With a well-thought-out plan for the use of working capital, you can help ensure growth and the implementation of future plans. Think about how financing can be most useful, and you will be better prepared to take the right steps. After all, many can take a loan, but not everyone can use the money correctly.