The time may have come when you realize that you actually need more working capital. Perhaps you’re not able to meet monthly financial obligations. Perhaps you want to expand into a bigger physical space or a new market. Perhaps you know that if unexpected trouble strikes, you can’t absorb the cost. Whatever the reason, it’s clear that your business would benefit from having more cash.
Figuring out where to get the capital can be tricky. Some small businesses boost sales. Others extend their accounts payable, establish working capital lines of credit, or take out loans. But one oft-overlooked source of working capital is your fixed assets, including equipment and property.
Now, I know, for some people, the idea of selling assets, especially at a loss, is hard to swallow. You bought that stuff with your own money. (Or perhaps, with someone else’s money.) You might need it again someday. But look at it this way: Cash in the hand is worth way more than an old printer on the shelf. And selling stuff to get cash is almost always better than using, say, a personal credit card to float your business. Why? One of the first axioms of business ownership is keeping personal and business money separate; and once you’re using a personal credit card to finance business expenses, “you’ve muddied the waters,” says Bill Collier, president of the St. Louis–based Collier Financial Advisors. “Go this route and you may end up with problems,” Collier warns.
So here’s how you avoid that. First make a list of all your fixed assets, including land, buildings, machinery, vehicles, furniture, and office equipment. Then take a hard-nosed look at what you’re actually using and what’s just sitting around taking up space. And then, pay attention, this is key, designate time (either your own or that of a staff member) toward selling those assets. This may need to be done by classified ads, your local Craigslist, eBay, whatever it takes. Remember that if you’re selling real estate, it may take a while to find a buyer; in some cases renting out your land, buildings, or extra office or warehouse space may be the fastest way to find cash for your business.
Some small business owners also set up “sale-leaseback” arrangements for their fixed assets, under which they find a buyer who is willing to purchase the fixed asset and then lease it back to the owner. The advantage of this is that you can deduct the lease amount from the business’s taxes. In addition, lease arrangements generally appear as a footnote on your balance sheet; so they don’t affect your financial ratios, which means your access to credit shouldn’t be affected. Possible disadvantage? Over the long-term, you may end up spending more on the lease than you did on the original purchase.