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E-Myth – “Why most small businesses don’t work & what to do about it”

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Outsourced CFO | business lending best practices

Half of all businesses have closed their doors within five years and 29% of those businesses say that running out of cash was the reason says outsourced CFO. Business owners donít have to run out of cash, if they learn how to effectively use financing to help increase the cash flow in their business. Many business owners think that debt is bad, but understanding that good debt can be a powerful tool to help increase cash flow within a business, can help business owners make good decisions about utilizing financing in their business properly.

Understanding financing is a key to business owners using it for their business says outsourced CFO. Business owners should understand that they should consider financing hard assets instead of operating capital. It is almost impossible for business owner to qualify for a loan on operating capital, due to the risk involved the bank. Itís less risky for a bank to approve a loan on hard assets such as equipment, vehicles or buildings. If the loan is not paid back, the bank has an asset. If they fund operating capital, and that loan is not paid back, they have nothing.

The next thing that business owners should understand when it comes to financing is the earlier in their business that they apply for financing the better. Itís never too early to apply for business financing, and the recommendation by outsourced CFO is to obtain financing with the initial purchase of the business. And while obtaining financing during the initial purchase of the business, itís best to finance hard assets first. The reason why itís harder to be approved for financing later on, is if there is cash crunch potential in the business, is seen as a bigger risk to the bank to loan. Since most businesses have that cash crunch potential, it seeing is riskier for banks to approve, which is why business owners should try to obtain financing as early as possible.

Another way that businesses can use finance to free up as much cash as possible, is understanding interest rates and amortization periods recommends outsourced CFO. The reason for this is the longer it takes to pay a loan back, helps the business free up cash for operating rather than debt servicing. Some business owners make the mistake of looking only at interest rates, but both factors should be considered. Itís even possible to accept a slightly higher interest rate if that means the amortization period is significantly longer. By understanding how to use those two factors to maximize cash flow in their business, can help business owners keep the cash in the business rather than on debt servicing.

By utilizing financing as a tool for maximizing cash flow, and by using debt is a tool rather than think that all debt is bad, business owners can avoid the problem that 29% of failed businesses say led to their demise, and continue to operate their business successfully knowing that they have maximized their cash flow for their business.

Outsourced CFO | business lending best practices

By not properly understanding business loans, business owners run into one main problem when it comes to obtaining financing for the company says outsourced CFO. That problems is that business owners say that they canít qualify for the loan they applied for. Itís easy to teach business owners how to avoid this pitfall and use business financing as a tool to help them increase cash flow within their business.

There are several things that a business owner can do to increase their chances of being approved for a loan. The biggest thing to remember is that they are more likely to get approved for the loan the earlier on in their business that they apply. Outsourced CFO recommends that businesses apply for business loan for their assets during the purchase of their business. A bank is more likely to approve business loans on a brand-new business. Options are limited once the business is in operation.

The next step to getting approved for business financing, is knowing that they are more likely to get approved for hard assets such as buildings, vehicles or them equipment required to operate the business rather than operating capital says outsourced CFO. Itís much less risk to the bank to finance assets over capital, as the bank will has something to collect if the business does not pay back the loan.

The third thing to remember to help business owners get approved for a loan, is submitting a loan application to more than one lender at the same time recommends outsourced CFO. The reason for this is because it takes a significant amount of time for a business loan to get approved due to the complicated nature of understanding the business. If a business owner has submitted to loan applications to different lenders, one bank can deny the loan, and to the business owner isnít starting the process over at the beginning, which takes significant amount of time. Business owners should work with their bank whenever possible to maximize the potential of the bank approving them. A great banker will let a business owner no if their application does not satisfy the banks rules and risk tolerance rather than just saying denied. But if the application gets denied at any time, business owners should inquire why, and what they can do to change that. Not all banks are interested in financing any business. By helping a business owner change their application and make adjustments to what is appealing to the bank can mean the difference between a application that gets approved or denied.

By understanding these ways business owners can actually qualify for a loan, they can be that much more able to get the loans they need in order to help them increase the cash flow in their business. Which can mean all the difference to business owners, since 29% of failed businesses say that running out of cash was the reason they failed.