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Wednesday, March 17, 2010

What's Your Take on Financing a Business?

Question: I'm a big fan of your insight and business "savvy. I've read your articles in Early To Rise, and dozens of other places. But you haven't talked a lot about the pros and cons of financing a business. What's your take on financing a business?
W.G. Houston TX


Answer Marc Charles:
Hi. Thanks for the compliment. I've learned to take compliments and insults in stride over the years. It seems like 80% will benefit from what you say and 20% will not. I hope my wife and kids are in the 80%!


Actually, I'm surprised you haven't heard me talk about borrowing money to start a business before. This is in my DNA....as they say.


I've never liked the idea of financing a business. But the realty is sometimes its needed.


Have you read Richard Dennis's book How to Get Rich? If not, pick up a copy. It's really good.


In his book Dennis talks about different ways to finance a business. You can obtain money from sharks, dolphins or the little fishes.....I'm paraphrasing off the top of my head. 


The sharks are like venture capitalists, the dolphins are like banks and investment firms, and the little fishes are high net worth people, friends, family and the like.


I'm sure I've botched this up....but the principles hold true.

Anyway, you should avoid VC, investment firms and banks. Focus on high net worth individuals, friends and family. But all of these have unique shortcomings.


When I was starting out as an entrepreneur I never took out a loan or financed a business.


My primary focus was making the first sale and improving the direct marketing.


One business generated more than $200,000 a year in sales practically from the back of my car!


Almost every viable business can self finance!


What's more, when it comes to digital businesses or doing business online, its even more true.


The reality is most people who start a business focus on getting financing or a loan. I think the focus should be on making the first sale and then the second! The second objective should be improving the direct marketing.

If your business takes off...and makes money hand over fist....you can SELL IT, and have the money you need for your next venture! It's fairly simple to sell a business that is making money and has no debt, with super low overhead expenses.

But try selling a business with a boatload of debt, slowing sales, massive inventory and overhead expenses.

Well.....I hope that helps! Focus on making sales and improving the direct marketing strategy.

Later.....


MC

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