How can you keep a business if your under capitalized?

Answer 1

Why do you think you are under capitalized? If you had a bunch more cash, what would you do with it?

The reason I ask is that I have met with a number of business owners who describe themselves as undercapitalized, but in reality they were just plain losing money.

First things first: Are your books in good order so you can really understand the financial condition of the company? If not, take the time and work with an accountant to make sure your books genuinely reflect reality.

Then, take a look at your Balance Sheet. Are your current assets significantly greater (at least 1.5x lets say) than your current liabilities? If not, then you have a profitability problem, not a capitalization problem. More capital won't help, other than delaying the point at which your company goes under. You need to either increase prices or lower expenses. As a general rule of thumb, I like to see small companies putting a bare minimum of 10% net income on the bottom line. Better still is more like 20%.

Assuming your Balance Sheet is decent, then you may just have a cash flow problem. You should be able to get a bank to loan you money against your accounts receivable.

If you need to make new investment in equipment, then vendor financing is a great way to go. Many times equipment vendors will have preferential arrangements with leasing companies that you can take advantage of.

Sorry to be so long winded. Hope this helps!

Answer 2

For those of us who have started a business without any knowledge of how to actually run it and make it fly, the best thing to do is to juggle your money.

- offer promotions and sales to get more sales

Answer 3

Sell preferred stock. That raises money but doesn't give the buyer an equity stake.

Answer 4

Search out VC money...