Are you borrowing enough money?

I have worked with a few business owners over recent years who have proudly told me that they are debt-free and “owe nothing to anyone”. This sounds like a great way to live and a strong claim to make.

However, in many cases, not borrowing money at the right time can be a reason to slow growth and in some cases lead to missed opportunities. Let me explain…

The prudent approach is to build cash and capital reserves and spend these when the correct purchase becomes available. This route will lead to steady and assured progress and should not be looked at with anything other than positivity.

However, this is a form of management by constraints. If you take the reverse approach, managing the opportunity a different set of decisions come into play. Suppose a business owner is running well and making decent profit and has a reasonable cash balance in the bank but sees an opportunity to increase profitable revenue through innovation or change in offer. This is likely to be because of a gap in the market that has been spotted, remember that opportunity lives in the gap between what your target market want and what your competition can offer.

What could the opportunity seeking business owner do if they require more cash to take this opportunity than they have in the bank?

Well, the first thing to do would be to carry out due diligence on the opportunity by doing some sort of market research to demonstrate that the opportunity is truly likely to be profitable. Then they should do a return on investment calculation on the purchase cost (including the cost of money to cover loan interest payments) and use this to be comfortable with the purchase of whatever is required to fulfil the opportunity.

The next step is to add the outcome of the return on investment calculation to the existing cash flow forecast to ensure that there is no additional future cash gap caused by the decision and then it is time to consider the lending criteria.

Banks are the natural first port of call and I would certainly advise that as the money cost can often be the cheapest as long as they see the value of the opportunity and the owner is considered a reasonable business to lend to.

However, other options are available and two that I would suggest would be asset financing, which effectively allows one to purchase plant and equipment very flexibly or to look at crowd funding platforms. The crowd funding platform that Action Coach have entered into a strategic alliance with is Funding Circle. If any of you have been through the process as described above and have decided that getting a loan is the right route to go down then please contact me and I can introduce you to our account manager.

If anyone would like to discuss their stance on borrowing please contact me on or call on 07511969690.