Growth Strategy for a Small Business

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!



Author: Paul Foster
Paul's life’s purpose is to bring more cash, freedom and happiness to independent business owners. Paul wants to learn about your toughest business challenges and frustrations so he can help you tackle them.

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