Is It a Good Idea to Finance a New Business with an Existing Business?
You have successfully made it as a small business owner. You navigated the issues associated with running your own company, persevering to accomplish what many people cannot. Now, being the crafty entrepreneur that you are, you are curious as to whether or not you can replicate your success. Why not? You have had a clever idea that blossomed into a lucrative endeavor. But this time around, there is a question to consider that was not a factor with your first business: Is it a good idea to finance a new business with an existing business?
This is a vital question that has several aspects to consider. Whether you are a successful business owner looking to start another company for the first time or already have multiple businesses but want to know the best way to finance your next endeavor, there is insight into the topic to be gained. Let’s take a look at some of the pros and cons of financing a new company with your existing one.
• When you invest finances into another company, you are not just giving it a chance to grow; you are also diversifying your income. Diversification is a much less risky means of investing than keeping all of your investments in one place. If one company underperforms, your overall portfolio performance will not necessarily be negative.
• Loaning yourself money, is like entering into a partnership with someone you know has a 100% vested interest in the company’s long-term success.
• Using your old business to finance your new one is a fast way to obtain business capital. Since you are the lender, you will not have to wait long to see if you are approved.
• If the income from the primary business is too volatile, then your funds could run too thin at times, keeping the second company from getting off the ground. You will want to make sure that the income you are using to fund the second business is from a stable, long-term source.
• When you have multiple businesses supported by the same monetary backer, you run a greater risk of accounting errors. When it comes time to crunch the numbers for each individual business, you want to be sure to have each business’s expenses, revenue, income, and totals separate.
• Taking on a second venture may take you beyond the limits of the current business, which would require you to seek either financial assistance or a business partner. Instead of starting a new company for yourself, you may end up building a start-up for someone else to control.
• Though for all intents and purposes you are giving yourself money, you still need to take the time to write up a contract as if you were loaning another individual money. Do not cut corners during this process, as you could lose some of the invaluable legal protection you need when lending and borrowing money.
• You new business may not do well. When this happens, business owners tend to support the second project with funds from the first business for far too long. This create a drain on valuable resources from the initial company.
• The possibility you can over-complicate your current situation is ever-present. You do not want to think certain finances are in one account when they were actually transferred to another. Keeping the two companies completely and constantly separate eliminates the chances of this happening.
Same Day Funding
You might benefit more from small business funding from an outside source. Though there are some perks to funding a new company using another company, there are several ways to get a fast, convenient business cash advance. Some lenders even offer same-day cash advance loans, eliminating the time you would wait to receive the money. The paperwork all leads back to one place, eliminating the risk of confusion if you were to use your existing company for funding. Ultimately, it is possible to fund another business with your existing one, but the potential for complications might be worth more than trying to save yourself some time. It is often easier to just apply for a new business loan and keep both of your companies running on their own fiscal tracks.