Frontloading

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The recent discussion about running a business on credit produced some interesting responses. It's clear that a line of credit is useful and, in some instances, essential.

But that does not mean you have to go to the bank for the money.

Sometimes, the best source of financing is your customers. I have always tried to operate on my customer's money, not my own. That means securing a deposit that is sufficient to move the project to a point where another draw is justified.

In an ideal world, this is easy. But things happen and, not infrequently, there is a shortfall. This usually comes near the end of the job when most of the available funds have been exhausted.

This is where frontloading comes in. Frontloading can also be described as "robbing Peter to pay Paul.” You sell another job and use the deposit from that job to finance the completion of the previous one. Of course, you end up behind but it's really not that different than borrowing from a bank.

I have always considered frontloading to be a perfectly viable tactic. And for the most part, it works. The system crashes only when you have no new job to draw on. But in that case, you wouldn't be able to pay the bank back either!

D.D.

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