Should I borrow to grow my business? Dave Fishwick replies

I am a sole trader and small car dealer and currently pay for all my own stock. But this limits me because if I don’t sell, I can’t buy more for cash flow. 

I have been considering borrowing from the bank to invest in more or better value stock. 

Would you recommend borrowing to grow? via email

Dave Fishwick, This is Money business doctor, replies: I found myself asking the exact same question as you in my first car sales business many years ago. Sometimes you just need that extra cash to buy a bargain. 

I dealt with the issue by using credit cards at the beginning. I would find 0 per cent interest rate credit cards, and use the card to buy the extra couple of cars or vans that month that I needed. 

As soon as I had sold them, I would pay the cards off in full immediately. This system worked perfectly and lasted long enough for me to build up my cash balance in the bank to be able to buy more stock.

I think you’re in a good position owning your own stock. While borrowing to expand can be a good idea in some situations, it brings with it increased costs and increased risks. However, if you are missing some good deals then it could be the way forward initially.

Not all loans are equal, and stocking loans are a common way to fund more cars, but some have better terms than others. 

I personally have never used a stocking loan ever, the repayment rates are usually terrible. Always read the small print about the fees, and interest payments.

I have come across many car dealers who have signed up to some very poor terms. 

You might struggle to get a good deal as a sole trader. Remember you want to make a profit for your business, not the bank or the stocking loan provider, so shop around for the best terms and interest rates. 

A very important lesson in business is ‘turnover is vanity and profit is sanity’.

We are currently in a very volatile and fast-changing economic environment right now and many commentators are predicting even more turbulent times ahead. 

Global supply chain problems and inflation have pushed up the value of used cars recently. 

However, there is no guarantee this trend will continue upwards.

We may see a reversal in prices if affordability becomes more of an issue for your customers going forward. 

I have been in the motor trade for over 35 years and have never seen new and used vehicles make as much money as they are today.

My advice is to establish a small credit facility so you are always in a position to pick up the best buying opportunities, as they come. 

Be very cautious about expanding too quickly in these uncertain times. You do not want to end up with too many vehicles at inflated prices.

The secret of running a successful business is: ‘You do not need to be brilliant in business, you just need to avoid the big mistakes.’ Good luck.

Is a business qualification necessary?  

My son has just completed his first year at college doing engineering, but now he wants to start studying business. 

He’s not sure which part of the business he would like to work in but his end goal is to run his own business. He did business at GCSE and has now applied to do a BTEC Level 3 National extended diploma in business. 

Would you recommend this as the right path to choose when starting? via email

Dave replies: It is very hard to know which career you’re best suited to at such a young age. 

Many school leavers don’t yet know where they could really shine, including me when I left high school. 

I remember leaving Edge End School in Nelson, at 16 years old, with absolutely nothing, I did not have a single qualification to my name.

However, I always thought the outside of the classroom window looked an awful lot more interesting than the inside, so I was always looking for adventure instead of studying.

My father got me a job on a building site as an apprentice and I was paid less than fifty pounds a week. 

Today I am building the first UK-owned new high street bank for more than 120 years, proving it is not where you start in life, but where you finish that counts. 

I truly believe that having any job is a very good start – even a part-time job as you start to learn important real-life skills from a very young age.

There’s more than one way to learn about business – being involved in a business or working in one can teach you how a real business works in practice. 

Some of the best entrepreneurs and business leaders learned their craft at work and never went to a college or university.

My thoughts are that engineering ranks in the top 10 subjects most in-demand from employers. Business studies, though very useful to many young people I’m sure, doesn’t make that list. 

I also think it would be easier for your son to change careers and become a businessman with engineering qualifications than to become an engineer with a business studies qualification.

 I am a very big fan of apprenticeships, so maybe this could be something to consider. 

I think it would be great for your son to speak to as many entrepreneurs as possible, especially the ones who have built multiple businesses from scratch.

I would also recommend your son speaks to his tutors before deciding to change his course. 

Maybe he could contact potential employers or attend open days. 

Further education is expensive, so it would be a shame to end up in debt, but without the qualification that he really wants.

In the end though, it depends on your son. Everyone is different and we all have different abilities and interests. 

The ideal career is being paid to do something that you really love doing. If he is struggling with his engineering course, or he’s sure it’s not for him, then maybe it’s the right decision, but I would urge him to think very carefully.

I wish him all the best for the future.