Money Is Just Money Right?

I have said it over and over again that when all is said and done - money is just money. It does not matter where it comes from as long as you (or your business) can use it as it needs to be used - to add additional value.

Money does not matter. What matters is what you can buy with that money - which is related to price, not money itself.

Thus, money is just money. Money is just another asset to a small, growing business; an asset that should be used to its greatest potential.

Having said that and the reason why has to do with, not money itself, but how you get it; how you get money and use it in your business.

Money can be expensive if you let it - meaning that you use it improperly or get it for the wrong things.

Do know that when you take a loan from a bank or lender - you are essentially buying money.

Example: Short-Term vs. Long-Term Debt

It should make sense that if your business has short-term financing needs, then it should use short-term financing loans.

And, the reverse should make sense also - if you have long-term financing needs then long-term financing loans should be pursued.

Let's say you need short-term financing of $100,000 (for 60 days) for the conversion of some financial assets - like getting paid for an order already completed, invoiced and shipped.

From that $100,000, your company will make $30,000 in profit or 30%.

Let's say that this financing costs your business 25% annually. Thus, for an amount of $100,000 - that money would cost $25,000. That is a lot of money to pay in interest. However, since you are only using it for 60 days, that loan's true cost is only about $4,200 - much more agreeable. Still leaving your firm some $25,800 in profits.

Now, let's look at long-term financing.

Let's say that your business needs to buy a piece of equipment that costs $100,000 and has a useful life of 5 years - 5 years to spread that payment out over - allowing the assets (the equipment) to pay for itself through added revenue or cost savings.

That equipment, over the five years, will bring in additional value (profit value) of $30,000 per year to your company that you can use to make loan and interest payments as well as to plow back into your firm in growth and development.

Again, if you used short-term financing for this long-term need you would have to pay approximately $25,000 in interest each year leaving yourself little to no real profits (not what using that asset should provide to your company). In fact, your business would have to pay, not 25% of your profits, but over half or some $86,000 in interest over the 5 years.

But, if you look at long-term financing options - let's say $100,000 for 5 years at 8% and can spread it out over that time, your interest, your cost of that money, would only be $25,200. Leaving an additional $60,800 in profits for your business (now we are talking about using an asset as an asset is meant to be used - to build more value).

Short-term financing is priced and designed for short-term needs and long-term financing is priced and designed for long-term needs. If you can match the loan or the acquisition of that money to the need, then you place that assets in the correct position to provide all that it can for your business - it is that simple.

Far too many small businesses tend to abuse short-term financing (which can be easier to get) for their long-term needs and then when looking backwards are amazed to see that not only have they NOT grown their company but have taken several steps backwards - not what leveraging your business through outside capital is designed to do.

I have seen many business owners use their business lines of credit, business cash advances or business credit card (short-term financing vehicles) to purchase long-term assets like property, furniture and equipment because they were convenient to use (already in place). Yet, as the business tried to move forward, these same business owners struggled to pay back or pay down these debt instruments from long-term cash flow - not generated by the assets purchased with that short-term debt.

So, while money is money and can be used to finance trade terms (the time it takes your business to ship goods to the time your invoice gets paid) as well as to purchase a needed pieces of equipment - the money you have in hand can and will buy both.

However, using one form for the other can be devastating to your business as shown here - far too many businesses fail each and every day because they over paid in interest; essentially making the deal a loser financially instead of the winner it had the potential to be.

So, while money is money and can be spent on all the same things, what really matters is matching the one asset (money) with the needs or other asset needs of the business. Thus, all things, the need, the assets and the potential are all aligned to provide the greatest rewards to both the company and its owner.

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