Most startups have one major problem in their first year of doing business: they invest a lot of money to launch their company. They keep investing during the first few months, but their return on investment (ROI) remains insufficient to keep them in the game. To make things even more difficult, although you may have the sales, your customers can choose monthly payment option or postpone their payment, so the reinvestment funds will once again elude you. This means that, even though your business may be doing fine, all your money remains on paper. There are a few things you can do in a situation like this.
Taking up Another Loan
There is a fat chance that you had to get a loan to launch your business in the first place, which is why this option is usually not preferred. Unfortunately, sometimes it is more than necessary to make this step. Seeing how you are already indebted, various banks may be reluctant to borrow you any more money, but they will seldom refuse to at least hear you out. In this meeting, they will ask you various things about your business plan, collateral and even some peculiar business details. If you do a good job during the meeting, you getting a second loan becomes a little less imposible.
Selling Your Accounts Receivable
Even though less commonly known than getting a loan, you can always sell your accounts receivable for some invoice funding. As we already mentioned, the money owed to you by your clients is the real money, but it is not at your disposal when you need it the most. This is why some companies will offer you an immediate payment in exchange for this postponed payment. On paper, you will trade more money for a bit less, but in reality, you get an immediate capital injection when you need it the most, and all of that without the need to indebt yourself. Finally, the fee they charge is no more than 1.5% – 5% which are better conditions than any loan could offer you.
Offer a Reward for Cash Payments
Another thing you can do is come up with a loyalty program, which includes rewards for those paying with cash. One of the things you could do is offer a discount like 5% or even 10% of the price for those paying immediately. It may seem like much, but you are likely to lose more on a monthly interest in case you decide to go with a loan.
You can also create a point system, which will award an amount of points to your client for every hundred or thousand dollars they spend buying. Each point should have a counter value in the actual currency and may be used to reduce the price of future products. In this way, you not only encourage cash payment, but also give a strong reason to your clients to buy from you again. This is exactly what loyalty programs are supposed to do in the first place.
While some of these options seem as something that leaves you at loss, the price of remaining in business is never cheap, especially in your first year. Your startup will definitely need a financial aid in its first year – that thing is certain. This leaves you with only two choices. Find a way to secure these funds, or shut down your startup. For most people, this is a no-brainer.