Originally published on August 25, 2020, updated February 9, 2021
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Often, I hear objections from clients that they have to have debt in their business in order to grow.
I understand the mindset and there are some factors that need to be considered because all debt is not created equally. Neither is growth. Here are some key factors about both that you must understand, or they may come back to haunt you.
Let's dive into debt first. There are three kinds of debt I typically see with eCommerce clients:
Growth that occurs in the business typically requires debt like bridge loans or leverage. Trying to grow a business that is using debt to delay the inevitable is like throwing gasoline on a fire. It's a sure way to accelerate things, but not to really grow the business.
So, what do you do if you find yourself in the "delaying the inevitable" mode?
First, take a vow to no longer borrow money until you have worked yourself out of this issue.
Second, do a deep dive on your products. What is producing gross margin at an acceptable level, 30% or greater; and what is not performing adequately? What can be done to improve this scenario? Can you raise your prices? Can you reduce your manufacturing, fulfillment or shipping costs?
Third, get aggressive about cutting your operating expenses. Lastly, look for ways to consolidate your debt into the cheapest instruments so that you minimize your loan payments.
Give yourself a timeline to work against - three months, for example. If you work diligently for three months to create a sustainable business model and you really don't see significant improvement, then make the tough choice and learn what your exit strategies may be.
The business may have value in the marketplace even though you have had challenges. New owners would operate the business differently and likely would not have the cash constraints and debt burden that you may be in. While the business may not be performing as you dreamed, it may be best for you to cut your losses and let someone else take the reins.
If your Amazon business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers.
You can also sign up for the Profit First for Ecommerce Sellers Online Course. As a Mastery Level, Certified Profit First Professional, I will teach you why Profit First works so well for eCommerce businesses and the particular challenges for businesses that have physical products requiring inventory management.
Originally published on August 25, 2020, updated February 9, 2021
This post is accurate as of the date of publication. Some features and information may have changed due to product updates or Amazon policy changes.
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