A small business loan can help you build a healthy, sustainable business. Keep these seven best practices in mind in order to maximize your loan.
Congratulations on landing that small business loan! You’re probably eager to start spending your hard-won dollars on equipment, supplies, offices, and talent. But how you choose to spend that money can make or break your company.
If you’re looking to maximize early-stage capital and build a healthy, sustainable business, keep these seven best practices top-of-mind:
1. Ramp up your marketing and sales efforts.
Acquiring customers and increasing sales figures should be your top priority. When considering how to market your products or services, select the methods that will help you earn the most revenue in the shortest period of time. In other words, look for the low-hanging fruit. Perhaps you’ll take advance orders online, sign up for Google AdWords, or even make your debut at a popular regional trade show. To avoid trial and error (and lost dollars), research what’s worked best for similar businesses in your field.
2. Focus on your core business offerings.
Discover which products and services you’re best at delivering and build your business from there. Follow the opportunities for increasing revenue, too, even if they’re not as attractive as those you envisioned when you dreamed up the company. If the technology or service you’re selling attracts a particular demographic, don’t turn them away just because you envisioned yourself selling exclusively to someone else.
3. Review your budget.
Whenever possible, resist the temptation to spend every cent of your loan. Take a look at your budget and see where you can cut even more costs. This will help you come up with creative solutions to unexpected problems and will prevent you from padding your budget with expenses you can live without. (If you’re not running a storefront, do you really need an office space from day one?) Plus, you’ll have a little extra in the bank for emergencies. That said, you don’t want to be so frugal that you create an inferior product or provide customers with a lesser service. Balance the line between keeping your cost of goods down and delivering a superior customer experience.
4. Enlist help.
You and your co-founders can’t do it all indefinitely—you’ll quickly need legal and financial experts to protect your business and ensure your numbers align with your goals. You also likely need a top-notch support team. Shop around for the best people and vendors, starting with referrals from peers you know and trust. Hiring additional staff when you’re a new company can be tricky. If you’re not yet grossing $500,000 annually, hiring a contractor may be more feasible than seeking an employee (who will likely expect a salary and benefits). Be cautious when hiring consultants—do you really need that $25,000 business consultant to give you a crash course in sales methodologies, or could your time and money be better spent elsewhere?
5. Find other cash flow fixes.
Don’t blow your entire loan trying to cover up cash flow deficiencies. Make sure your budget and revenue forecasts are realistic and your bookkeeping method is solid. Then look into other financing tools to tap throughout the year as needed, such as credit cards with favorable terms to pay for supplies and inventory, or invoice discounting or factoring to recoup outstanding customer payments faster.
6. Expand slowly and deliberately.
Before you invest too heavily in building out your product line or service offerings, make sure that your initial offering has been tested and proved successful. Test products in small batches to gauge customer reactions rather than invest in big production runs from the start. Open one store to start, not five. Become a regional hit before you try to go national. Online, become a crowdsourcing success before building out a big, spendy e-commerce site.
7. Measure your success.
Set realistic goals and the metrics by which you’ll measure them. Do you want to see your revenue double next year? Your customer base triple? Your employees hit a specific sales milestone each quarter? Such accountability among founders and staff will help you track how well you’ve allocated your loan.
Getting approved for a small business loan is a big deal, and you should be proud that you’ve gotten additional capital to help you grow your business. The above tactics should set you and your small business up for success and allow you to get the most out of the loan you worked so hard to get.
This article is intended for informational purposes only. Readers should consult their own financial advisers, attorneys or other tax advisors regarding any financial or tax strategies mentioned in this article.
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