The drop-shipping business model is very attractive to potential entrepreneurs. You can make a profit on sales of products that are stored and shipped by another company, making it a win-win proposition for many small businesses. One issue that can often pop up is debt, but these tips can assist you in staying debt-free.
Use Business Funds to Cover Your Debts
As a drop-shipper, you may not have to pay overhead for warehousing the products you sell, but often, you have to pay the company that sells your product along with other monthly debts, such as your website hosting. Use the money from your profits, and put them back into your business.
You should be saving a percentage of your profits when sales are doing well to cover those times when sales have slowed. Reinvesting your earnings in your business can make a big difference through those lean times that crop up.
Handle Late Payments
In the drop-shipping model, most of the time when your customer makes a purchase, he or she submits payment before you ship your product. However, you may end up entering into arrangements where the customer takes the product and pays at a later date.
In this type of circumstance, it’s essential to stay on top of late-paying customers. It may become necessary to cut them off if they start holding up a payment that prevents you from paying debts your business owes.
Evaluate Your Funding Options
The first thing that many small-business owners think when they have funding issues is to go to a bank to get a loan. However, as drop-shipping depends on consumers buying your product, agreeing to a bank loan may not be your best funding option.
Consider funding methods such as startup incubators or crowdfunding as part of your options. Bank loans often have high interest rates that can make repaying this debt harder than alternative funding methods.
Find Ways to Cut Costs
A great way to increase profits and to keep debt at bay is finding ways to cut costs. Just make sure that any cost-cutting measures you make don’t impact the quality that customers see. Dissatisfied customers are often not worth the money you save.
Some options for cutting costs can be reducing shipping costs and finding cheaper services, such as marketing companies.
What to Do When Debt Happens
Staying out of debt as a drop-ship business owner can be a hard task at times. It often requires strategic planning. For instance, you’ll always want to try to reduce the higher interest debt first when you can.
One of the areas where debt can be an issue when it comes to a drop-shipping business is taxes. When business taxes become an issue, it’s often beneficial to speak to a professional. Someone that understands how to handle tax issues can often assist you in finding the right option to get the best outcome for the problem.
You’ll want to keep your debt to a minimum when getting involved with a drop-shipping business. Each of these tips offers a way to create your drop-shipping business with little or no debt, so you can concentrate on providing great products or services for your customers.