Over the last couple of years, we’ve had the opportunity to share some small business advice from The Shark Tank’s Barbara Corcoran. We want to thank her for all the time she spent helping OnDeck’s community of small business owners by answering many questions directly from you and the many business blogs you read. I want to take the opportunity today to highlight a couple of questions Barbara answered earlier this summer on business financing to help business owners make better borrowing decisions.
The first question she answered on this topic was from the blog FitSmallBusiness:
Are there a few rules of thumb you could share with us that would help a small business owner differentiate between good business borrowing vs. bad business borrowing?
“Borrowing money can be a sound business decision when done strategically and with discipline. But borrowing money without thinking through the consequences can end in business disaster. When weighing a decision to take out a loan, ask yourself – is this really a good investment? Is this integral and necessary to growing my business? It’s smart to think through exactly how you expect the company to benefit from the borrowed cash over the long-term and how likely you are to actually received the anticipated benefits. Entrepreneurs by nature are optimistic and tend to overestimate the perceived benefits and nothing is more disheartening for a business owner than paying a business loan back WHEN THE MONEY SPENT HASN’T GIVEN YOU THE BENEFITS YOU PLANNED ON. But few things in business are as satisfying as REPAYING the business loan after your business has reaped the benefits from the wise use of the cash.”
In her answer above, Barbara brought up a main focus point of many articles we’ve written in the past. The best use case for a business loan is a project where the use funds connect to a clear cut ROI that makes sense with the term length associated with it. Borrowing for growth, be it purchasing new equipment, expanding to a new location, or buy inventory is always the best option, but even then you should make sure that the cost of the funds don’t outweigh the benefits from your investment.
The other question Barbara answered about business finances and investing for growth was from the Salesforce Blog.
A growing business needs to be smart about its money. How should small businesses prioritize what to invest in/growth investments?
“Every growing business runs short on cash, so you have to be very smart on spending the limited cash you have wisely. You should invest your money only in the things that will directly result in sales, as sales is the lifeblood of every business. Invest your money only in those things that directly result in more sales. Many young entrepreneurs spend money way too early on expenses that don’t directly produce sales. Spending money on patents, collateral material, PR agencies and administrative staffing may support sales and generate buzz, but it won’t bring money in the door. Spending money on smart advertising, direct sales calls and hiring more people who can sell your product or service gets more sales in the door and builds your business.”
After nearly a decade working closely with small business owners, there is one thing I can assure you: Your business is your baby and it’s nearly impossible to completely separate emotion from the equation—which can make some decisions, especially about where to spend money, difficult. For example: it’s more fun to work on creative projects and thinking of out-of-the-box ideas to grow your business than going over your books.
Entrepreneurs by nature are not limited by the practicalities of the business world or the odds stacked against their success, but you need to make sure that your core sales are functioning well before you can invest in other “fluffier” areas of your business. If you set up your company to focus on sales or client facing processes first, you’ll have the funds and the business health to do what you want to do in the future.
Growing your business is as challenging as it is exciting. You will have hard decisions ahead of you, but if you make sure to put the health of your business first, you’ll have a better chance building a long-lasting business.