Finance Advice for Starting Your Contracting Business
My recent article about the Kiva microfinance program brought up a lot of discussions about the global economic crisis, and the difficulties that even American companies are now having when applying for loans.
Small businesses have a particularly difficult challenge when it comes to reducing costs without sacrificing quality and service.
In business and finance, there is a lot of talk about “opportunity cost”. An opportunity cost simply indicates what you must give up in order to pursue one option versus another. Without going to deep into boring numbers and complicated logic, I’d like to give you a simple example to illustrate how this concept works.
Let’s assume that you have $2,000 in cash to spend on your business this month. You now have to make one of 2 choices:
Although you pay much more for your tools using the “buy now pay later” scheme in Plan B, you still end up making significantly more money.
You can see that Plan A will earn about $1,000 in profits while Plan B will make $2,500 in profit from the same $2,000 investment. In other words, option A has an opportunity cost of $1,500. That’s a pretty significant difference.
(Yes, I know this isn’t a realistic scenario. It’s more just to prove a point about time and its effect on the value of money.)
Now more than ever, it’s vital that entrepreneurs be frugal and cost-sensitive. The leverage that debt provides can give you access to resources that will help maximize the return on your efforts.
Of course, this is easier said than done. Bankers aren’t exactly hanging from their helicopters and dumping piles money over your house.
Rather than rely on traditional bank loans for all of your financing, you now need to find creative sources of OPM (Other People’s Money) financing to grow your business.
Here are a few things to keep in mind:
- Try to negotiate payment terms with your suppliers where you can pay later
- When possible, borrow or rent tools and supplies rather than purchasing them
- You don’t need to own an asset in order to benefit from its use
- Even if it’s more expensive, leasing is usually better than buying
- Never spend cash when you can barter
- Keep your available credit high by offering to pay in multiple payments rather than charging to your credit card
- Buy used or refurbished instead of new
- Offer discounts to customers who pay earlier and give bigger down payments
Finally, Air Tool Review and our partners would like to help out with your business. We’ve made an arrangement with Tool King, where they will offer to help with the growth of your business:
Make No Payment for 90 Days
on orders over $50 with PayPal*
If you’ve been planning to make a tool purchase for an upcoming project, I’d recommend letting Tool King help out with these great payment terms so that you can put your money towards other profit-generating areas of your business.
*Please note: This is a limited offer. Take advantage while it’s still available.
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