Do you have any idea how many things entrepreneurs have to decide on every single day when it comes to the business they run? It’s a part of being an entrepreneur, so you better get ready to make a lot of choices. One of the most frustrating things Daymond encounters on Shark Tank is people who respond to his questions with, “I am not sure,” “I don’t know,” or “I haven’t thought of that.” These answers are frustrating in that he needs to know more before he can invest. At the same time, I get it. Most new business owners have no idea of everything they need to know and decide on.
One thing you need to decide on now before you start a business is whether or not you will extend credit to customers. That’s a bigger decision than you may realize, so consider the advantages and disadvantages too.
ADVANTAGE: HIGHER SALES
Let’s face it. People like to buy things even if they don’t have the money to. You offer credit and you are giving them a way to get those things they want. So, if you decide on this option, then you are going to have more customers. Studies have even proven this. There is plenty of evidence that when customers don’t have to pay upfront, they will buy more.
If your total goal is to get as many customers as possible, then this could be a good option. You will certainly have more people coming to your door when you advertise that they can buy on credit.
DISADVANTAGE: LACK OF CASH FLOW
Now, on the same note, you have to think about cash flow. You have expenses as a business. You need to pay rent, utilities, payroll, inventory, etc. If you don’t have enough cash coming in, you are going to run into problems. This is where a big disadvantage to extending credit comes into play. You won’t have cash coming in with each purchase, and that means you may not have the money you require to pay the bills.
The nice thing about credit is that you will be getting regular payments from customers, and that means you know when money will be coming in. With the right budgeting, this can work for your business.
ADVANTAGE: THE COMPETITIVE EDGE
You have a lot of competition out there. Daymond has to deal with competition, and he is already successful. It is just a part of life for business owners. And, your goal is to be as competitive as possible. Your goal is also to find ways to get an advantage. In other words, make yourself stand out from the competition. If you don’t, then you won’t go very far. Extending credit to customers is a great way to do this. If your competition isn’t, then you automatically have a reason for people to do business with you.
As an entrepreneur, a big part of your life will be making decisions. Whether or not to extend credit is one of those choices you need to make, and there are both advantages and disadvantages to it. You need to know what you are getting into. Can you handle your expenses even with a lowered cash flow? Will you be willing to deal with the frustrations of people who won’t pay? At the same time, know the advantages and you can see how good this will be or your business. Then, you can decide if extending credit is something you want to do. Of course, the second you make that decision, you will have another and another to consider as well. Welcome to life as an entrepreneur!