Why Funding is Important for Local Organizations
Tuesday, August 25, 2020, 6:00 AM | Leave Comment
Funding is the backbone of many developments in the vast majority of local organizations.
But interestingly, there are lots of other organizations that have not yet leveraged the perks that come with various organizational-funding options.
As such, read on to discover ways in which funding can grow your local organization.
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Keeping Up with Demand
Inventory vastly contributes to the expenses of an organization. And more often than not, you need to replenish your inventory with high-quality options, so you can keep up with demand.
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Real-World Scenario
Let’s say you need to purchase large amounts of inventory, which require a longer time to yield reasonable returns on investments. But you realize you don’t have cash for purchasing the inventories. Sounds like a tricky situation, huh? In fact, if you have a seasonal business, this will be harder. As such, loans and other funding options will come in handy.
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Playing Safe
Before taking a loan for purchasing inventory for your organization, you need to determine if the loan is worth it. First, create a sales projection using your past years’ sales records. However, while creating the sales projections, consider using sales projections for multiple years since sales figures vary from year to year. Now, calculate the cost of the debt you intend to take. Then compare the results to that projected sales you had calculated earlier.
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Expanding Your Physical Space
Let’s say you have recently noted that your business premise can no longer hold the multitude of customers as it did earlier. Or you’ve discovered that your church is insanely filled to capacity during the services. This is probably a call to expand your facility. However, in such events, many organizations don’t have cash on hand. So, what is the best way to work-around such situations?
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Funding Options
You may decide to build another business premise ground up. Or you might want to expand your current facility. Regardless, you shouldn’t feel lost; there are excellent funding options for local organizations at your disposal. The option includes (but not limited to) term loans, church loans, and much more.
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Playing Safe
Building or expanding a facility may not have a direct impact on the return of investment of an organization (especially a non-profit organization). So, weigh the cost of the debt versus the returns (monetary returns or/and worthwhile non-monetary returns) and see if your big move is worth it.
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Funding a High-Return-Promising Business Opportunity
Sometime you may come across a business opportunity that on a deep analysis, appears to be a super profitable deal. Again, let’s say you’ve landed this golden chance to order inventory in bulk at a discount. Or even more exciting, you got an expanded retail space suitable for a business endeavor. How can you go about this?
First, weigh the cost of the loan/funding against the profit you are likely to make through the opportunity. To illustrate this further, let’s say you have this gym equipment selling business. Then, one day you get a commercial contract worth $40,000.
Sadly, you lack the equipment needed to complete the job. So, you do your research, and you find that the equipment will cost you $10000. And guess what idea pop up from your mind… “I need to take out a loan!”. As such, you take a two-year loan on the $10000-worth equipment, and lenders require you to pay a total of $ 2000 in interest. Consequently, you will get $28000 as profit. That’s a heck of a deal! And you should pursue such business opportunities.
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Being Extra-Cautious
When weighing the cost of debt versus the return on investment, you should be extra-wary with your calculations. Over-enthusiasm will get you into hot water and many entrepreneurs have been guilty of this.
They have often underestimated the true costs of opportunities or overestimate the return on investment of opportunities. So, when determining if an opportunity is worth it, base your decisions on hard numbers rather than of your instincts.
Final Thoughts
Funding is undoubtedly important for local organizations. They can help you get through those tough moments of an organization. But to be safe from getting into bad debt, check through your reasons for pursuing funding options such as loans. Only then can you determine if funding options such as loans are the best option for your organization.
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