Getting money for your business

Posted by Christina Lopez on October 22nd, 2010

At some point we’ve all heard the phrase “multiple streams of income.” The idea is to make sure you don’t rely on just one source of income. In other words, the more diversified we are, the more likely we are to succeed and get through any hard times.

Here’s an example of the value of diversification: A client of ours has a contract with a major retailer in the United States. Ninety percent of the client’s revenue comes from this one retailer. Last week the retailer announced that it was closing more than half its stores. Our client now stands to lose not only half of her revenue potential, but 100% of her revenue if this retailer fails completely.

How many clients do you have? If one client fails to stop paying, will you lose more than 10% of your revenue? Will you lose all your profit?

So you ask, what does this have to do with getting money for my business? Continue reading to find out…

Just as we need many sources of income, we also need multiple sources of financing, or to put it better, “sources of capital.”

Wouldn’t it be nice not to have to borrow money every time you need it? Wouldn’t it be great to pay very little interest on the money you borrow from time to time? Better yet, wouldn’t it be great to pay yourself interest on money borrowed by the company?

I’ve worked with small business owners for ten years, from startups to early stage growth to mature companies, as well as those looking to exit. At some point all of them were looking for funding. No matter what stage of business you’re in, funding is critical to your success. Just look at some of the Fortune 1000 companies with very large credit lines from banks. The credit lines are for growth and the ability to acquire companies when an opportunity presents itself.

Based on my experience working with thousands of companies, I know that having multiple sources of capital will help at any stage of business. They can include any of the following:

Additional Revenue Strategy #1 – Why not run a special offer to existing clients, encouraging them to come back and purchase again? You’re not discounting new clients’ purchases, but rather getting additional clients to repurchase and increase your sales. Of course, in order to do this you need to have a client list. Make sure you capture at minimum an e-mail address from everyone you do business with and better yet, an e-mail and physical address. When you need capital, don’t be limited by the belief that the only way to get it is by borrowing from your bank.

Additional Revenue Strategy #2 – How about increasing what you charge? Often we assume that increasing prices will always drop the number of people who will buy from us, eventually leading to a drop in revenue. In my experience, you can also charge too little. I’ve seen products sell only 10 units at $199, but when the price went to $599 the store sold 50 units. The reason? Perceived value. People are willing to pay more sometimes when they believe they’re getting a good value.

Additional Revenue Strategy #3 – Set up an affiliate or referral program. Pay others to sell your products and/or services or reward them to refer people to you. This is a great way to increase sales without spending any money on advertising. In setting up BCS, we spent the first three years generating revenue only from affiliates and referrals. We didn’t advertise our services until late in the third year. I learned that I needed additional revenue streams and didn’t want to rely only on the affiliates and referrals.

Additional Revenue Strategy #4 – Borrow from yourself. Remember that you and your business are separate entities. You can lend money to the business and charge interest. You will have to claim the interest as revenue on your taxes but it’s a great way to get money out of your company without paying payroll tax (15.3%). The interest you charge also needs to be reasonable. Don’t charge 50% interest on a year-long note.

Obviously there are several other types of programs for small business owners to get financing as well: factoring, trade credit, merchant account cash advance, leasing, line of credit, loan, secured loan, and many more. Read my post, How to get business financing in a tough market, to learn more.

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