Getting your initial funding is important for any business owner. However, you can spend so much time focusing on your presentation to investors that you don’t consider what steps you should take next once you actually receive funding.
Don’t make this mistake! Although the specific way in which you use business funding will depend on the nature of your business and strategy, you still need to take these crucial steps after getting a loan or investment.
Prepare to Pay it Back
The way in which you pay back business funding varies. If it’s a traditional loan, you’ll need to pay it back in installments (and with interest) over a set period of time. Make sure you’re financially prepared to do so. If you default on a loan, your business credit will suffer, making it difficult to get additional funding in the future.
Investments are somewhat different. Typically, an investor will provide funding, in exchange for an ownership share. They are taking a risk and hoping to get a strong return on investment. While you may not be required to pay them back the same way you would pay back a bank or similar lending firm, you still want to ensure you’re using the funds they’ve invested as wisely as possible. You don’t want to cultivate a poor reputation among investors because you failed to deliver on your promises. Once you get funding, determine precisely how you will use it to maximize an investor’s ROI.
Understand the Details
Always “read the fine print” before using business funding. For instance, some types of loans come with restrictions for how you can use them. Don’t misuse funds because you didn’t understand this.
Additionally, if your company performs better financially than you expected, you might be able to pay off a business loan ahead of schedule. This is an ideal situation for everyone, right?
Not always. Lending firms often earn money by charging interest on loans. That’s interest they may not be able to collect if you pay back the loan early. Thus, they sometimes impose penalties for early repayment. Make sure you carefully check repayment terms before paying back a loan sooner than you originally agreed to.
Adjust Your Plan
Successfully acquiring early business funding is a major and exciting milestone to reach. Now is a good time to adjust your plans.
Perhaps you can now make changes to your budget. Expenses you couldn’t previously justify may now be reasonable. Revisiting your budget after getting business funding is certainly a smart idea.
However, you also need to plan realistically. Forecast how far this investment or loan will take you, in order to prepare for the future. Odds are good you’ll need an additional round of funding at some point. You don’t want to blow through this capital, realizing you no longer have enough liquidity to cover your operating costs. Although you may be able to quickly turn certain assets into liquid capital, this is a situation you want to avoid in the first place. That’s why proper planning is key.
Coordinate
It’s smart to keep in mind that some investors serve as mentors. They have experience or connections you can leverage to boost your odds of success. Although this won’t always be the case, it is a good idea to coordinate with an investor after receiving funding to learn how they can help.
Most importantly, don’t lose focus of your goals. You put in a lot of effort to get funding. Now’s the time to use it to your advantage.
