07/ 10/ 2007
by Jeffrey Moses
The term OPM (Other People's Money) traditionally refers to borrowed money that allows you to leverage investments or start a business. OPM comes at a cost because normally interest in one form or another is charged.
OPFM (Other People's FREE Money), in contrast, often comes without interest and with no specific timetable of repayment.
The most common form of OPFM is when cash is given by a customer prior to a sale. When a company receives cash a week or month or even a year before providing a service or product, the opportunity is gained to stabilize cash flow, know in advance what sales will be, and potentially even invest and receive income on the cash during the transition period.
The following list includes ways that encourage customers to "loan" you money at little or no charge:
- Gift Certificates. When you take in money via gift certificates, you essentially are receiving payment for products or services before you make the sale. It may be weeks, months or even years before gift certificates are redeemed, allowing you greater cash-flow stability and use of the money for your business' needs. A small business should offer gift certificates to customers whenever possible.
- Taking payment in advance for services is another way to take in money prior to an actual sale. An example would be a gardening service offering a discount to customers paying in advance for the entire landscaping season. Unlike gift certificates, which are usually sold at face value without discount, subscriptions are most attractive to customers when some type of discount is offered. The normal discount rate is ten to 15 percent. A five percent discount usually is not attractive enough to entice customers, while a 20 percent or more discount cuts too deeply into profits.
- Coupon books are an excellent way to raise money in advance for specific services or products your customers need. They are similar to advance sales in that they require some level of discount to be successful.
- Memberships, coupled with future discounts on products and services, are an excellent way to raise money. Memberships are attractive to customers who understand that they will save money in the long run for products or services they will be using anyway.
- Down payments and layaways. Wal-Mart may have eliminated layaway plans, but this approach is excellent strategy for small businesses. Taking incremental money in advance on products helps customers who may have trouble saving for items they need. It also assures that they will receive the item at a specified price, without paying interest, even if the price rises before they complete their purchase.
