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One way to subsidize a skateboard company's growth is by collecting an investment or taking a bank loan.
INVESTMENTS
Taking an investment means, that you give away a specific percentage of your company as well as part of your company’s future profits. Profit is the money that is left after you have paid all expenses including your own salary. Since however only the biggest skateboard companies have money left after paying for productions, marketing and salaries, investors have to wait years to see any returns, if ever.
LOANS
Bank loans are borrowed money that has to be paid back in a higher sum within a specific time period. The cost of a bank loan for small skateboard businesses is usually around 7.5% and must be paid back within 3 to 5 years. To make sure their money is safe even if the skate company goes bankrupt, banks issue loans to founders and not directly to skateboard companies. This means, that founders have to pay back the loan - no matter if the business keeps running or not. Not paying back a bank loan can lead to increased lending rates and eventually private insolvency of founders.
INVESTMENT OR LOAN
Loans are risky because they must be paid back within a specific time frame no matter if a company is making profits or if it has any money on its bank account. To lower the risk of not being able to cover a monthly pay off, loans should only be used to buy machinery or stock that can easily be re-sold if necessary.
Investments are less risky but require a founder to give up part of his company ownership to a, from that time forwards, "co-owner". Unlike loans, investments can be used for more risky growth strategies such as hiring employees or growing marketing expenditures.
EXAMPLE CASES
1. If you plan on placing your first order of 200 decks but you are lacking the 3.000,- USD, you should not take a loan. An investment is acceptable. However it is best to find a job and save up over several months.
2. If you already sell 100 or 200 decks every month and you plan on buying your own heat transfer press and a small garage full of blank decks to better serve your customers, a bank loan can likely be the best decision.
3. If you sell more than 300 decks a month and you plan on increasing your sales and marketing team to expand into multiple countries, you might want to consider taking an investment.
ADVISE FOR NEW FOUNDERS
If you don't depend on your business to cover your living expenses, the best growth strategy is to not pay yourself a salary and re-invest all revenue into further productions. If you buy 200 decks for 3000,- USD, you can sell these decks for 6.000,- USD. If you follow this strategy and double your order quantity every three months, your company will have 384.000,- USD on its bank account by the end of the second year. Without a bank loan, without giving up shares, and without taking any risks.
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