Financial Resources The Worst Small Business Financing Strategy Ever? Tip! In these ways and many others not listed here, you may be able to start and grow your business successfully with very limited capital. Thus, you will avoid having to obtain expensive debt or equity financing. Depending on whose stats you pay attention to, approximately 80% of small businesses fail within their first 5 years of operation. In many cases, its not that a particular business could not succeed; there just wasn't sufficient time to figure out how to succeed. Which brings us to the worst small business financing strategy ever. Here's how it work. The would be entrepreneur develops what they believe to be a sure fire business plan that can't fail. Tip! Business Financing Mistakes (4) - Poor Payment Management. Unable to locate any form of start up capital, they start their business with credit cards as the only source of financing, and an expectation of sustainable business results within 3 to 6 months. If everything goes well, the debt will be retired within a year and funds will start building in the bank account. Sounds Good, right? I mean the thinking lines up perfectly with all the get rich quick business opportunities that exist on and off the internet today where some of them even try to convince you to use your credit cards because the opportunity is soooooooo good and can't miss. The problem is that every business can miss. Every single one. And the vast majority do fail. Have you ever spoken to someone who runs a successful small business; perhaps one that's been around for 10 to 20 years? If you take the time to ask one of these entrepreneurs about their start up period, what you learn may shock you. Even some of the most successful small and medium sized businesses out there today had some hairy moments making a go of it in the early years. And some times the difficult early years lasted for several years. The point here is simply this. The process of getting a business operating and successful can take many unexpected twists and turns, no matter how diligent you are in creating a thorough business plan and business financing strategy. Therefore, to increase your probability for success you need to allow for the unknown, the unplanned, and the unfair. Tip! - Purchase order financing is great for small to medium sized businesses who usually do not have the funds for large orders that could sky rocket their sales and turn their product into a household name. Image pitching your product to a major retailer, receiving an order from them, and then not being able to produce the goods needed because you are short on funds. A business financing strategy that cannot accommodate unforeseen events is not much of a strategy. A business financing strategy that is based on high interest credit cards that can destroy both your cash flow and your personal credit is also not much of a strategy. Tip! >>> Business Financing Mistakes (2) - No Projected Cash Flow. To improve your odds of small business success, here are some tips for developing a solid business financing strategy. >>> Invest Your Own Cash If you have some of your own cash penciled into your business financing strategy, it will immediately increase your likelihood of getting some sort of start up loan. The more "skin" you have in the game, the more interested a lender will be in approving your loan request. There is also something to be said about the psychological incentive of losing your own money and the motivation it creates for you to work harder to keep it. >>> Create Contingencies in Your Cash Flow Whatever you estimate your working capital requirement to be, double it. At least increase it by a factor larger than 1. Tip! US Small Business Administration: This is the most prominent source for debt financing. The SBA doesn't lend money directly but organizes and guarantees loans through various lenders and sources under its umbrella. Things can and will go wrong, so give yourself a fighting chance and develop a business financing strategy that allows for less than perfect results. >>> Use Credit Cards Wisely Used properly, credit cards can be the cheapest form of working capital that you have at your disposal. Some business credit cards provide 40 days of interest free financing. If you pay off the entire balance every month, you have an extremely low cost of working capital financing. But if you start carrying large balances without paying them down monthly, you will go from the cheapest source of working capital to one of the most expensive, and you will likely also destroy your credit rating in the process. >>> Make Timely Government Remittances Small businesses are by default tax collectors. And the taxes collected can sometimes wind up funding the business for longer periods of time than they were ever intended. Using government remittances as a business financing strategy is basically a bad idea. Government agencies that are assigned to collect from you have large budgets and enough broad sweeping authority to create plenty of grief for you if you are too slow in paying. If you apply for a business loan while you have an overdue balance with a government tax agency, your loan request will likely be declined. Tip! An individual may borrow money for the purchase of a business by obtaining a personal loan, by borrowing against insurance policies, or by refinancing a home mortgage. These debts are not direct debts of the business, but the debts of a small business and the personal debts of the owner cannot be completely separated. Even after the balance is paid up, you may have burned your bridge with the lender as a history of overdue government remittances can brand you as a bad credit risk. >>> Watch Spending Closely At Startup One of the things you can control early on is how much you spend and what you spend it on. This is going to change in time, but if you can spend wisely in the beginning you may be able to avoid a cost cutting exercise further down the line. While its normally true that you have to spend money to make money, you can still be smart about the spending process. Brent Finlay makes it easy to understanding business financing. Learn how to locate and secure proper financing for your business. To receive your free 6 part mini-course visit the business financing website.