- July 9, 2019
- Posted by: Paul Foster
- Category: Business financial help, Business growth help, Grow a Business, Small business financial help
Have you ever heard the saying, ‘you need to spend a quarter to make a dollar’?
If your business has the opportunity to purchase $100,000 worth of new product that can be resold at a 35-40% mark-up, why wouldn’t you buy it?
One reason you might not make the purchase is you don’t have an extra $100,000. Even if you have credit available, some business owners are reluctant to go into debt. Here is a suggestion:
Just rent the money from the bank for a short time period.
Money is cheap to rent these days. You can probably get a credit line set up for 4 percent per year (prime plus 1). This means you can rent $100,000 for a whole year for $4,000.
Rent some money to make some money
If you are good with your inventory selections and you put a little effort into selling it, you could probably sell it all in about 3 months. A good target for an ‘inventory turnover’ ratio is 4 times. This means you are able to sell the entire inventory, (or turn it over) on average every 3 months.
Let’s be conservative and assume in your business, the inventory only turns over twice a year. Let’s also assume you can markup your inventory by 30%:
The $100,000 of inventory will become $130,000 in six months. If you buy $100,000 more and sell that for $130,000 over the next six months, you will have an extra $60,000 at the end of one year.
If it only costs $4,000 to rent that money from the bank to make $60,000, why not go for it?
I guess you actually do need a quarter to make a dollar, but if you can rent the quarter to make the dollar then give the quarter back – it’s even better!