Whenever my retail store would hit a cash flow problem, I learned a trick to borrowing money fast and free. My business relied heavily on the University students nearby, and so every year August was a painfully slow month. Often I hit a cash flow problem and would need a short term loan to get me by until September, when the students would flock back to town and fill my pockets with cash. I just needed a few extra bucks for a month, usually about $2,000 or $3,000. If I used a bank credit line, the interest would be harsh for just one or two months. If I broke a time savings CD, the penalty would be high. Instead, this is how I bridged that gap for free.
Most distributors offer terms of 30 days net. They don’t charge interest, because they’re just interested in getting your business, making the sales. I was able to charge up to $10,000 of product each month, as long as I paid the balance within 30 days from date of delivery. This was helpful. But when I needed extra cash, this was a gold mine.
First, I would order about $3000 in the hottest product I currently stocked in my store. At that time, it was game cards. Typically I made a 44% marked up profit on these. But this time I had a weekend sale and sold them all at 2% above cost. I could advertise a heavy 40% discount weekend sale. This brought me a lot of new customers, made for a busy weekend, and gained me some very happy customers as well. But more important, it resulted in the sale of the entire $3,000 in merchandise I had just ordered. I brought in $3,060 quickly and I had 30 days to pay back the $3,000. $60 profit doesn’t sound like much, but remember this is a loan I’m interested in. I just got a $3,000 loan and not only was it free, it paid me $60 to take it. Now I could bridge my cash flow gap until the busy season starts next month, and I didn’t have to pay high interest on a short term loan or cash advance. Instead, I got paid $60 to take out the loan. By the time the invoice is due, my students are back and filling my cash register. I can easily pay the invoice, and all is well again.
I had to do this almost every year until my fifth year in business, when I finally had my own cash reserves saved up. It’s a quick way to get extra cash without interest. My distributors were happy with the extra $3,000 in business, and everyone comes out of it satisfied, except maybe the banks who lost out on their interest. It’s not something you want to do every month, since you need more than 2% profit on your sales, but it is a quick way to raise some cash.
The mistake many business owners make, when trying to raise cash, is to have a sale on existing merchandise or marking down merchandise that hasn’t yet sold. In most cases, these products will not move fast enough for a quick cash infusion. Instead, you need to order the hot products that are flying off the shelves. Those will sell quickly and get you the cash you need for a quick bridge between rough times.