Today’s small business owner faces numerous challenges every day but the most concerning are financial challenges. Managing business finances and promoting business growth is a complex task. Maintaining a solid financial situation is key to keeping a business operating and poised for growth. Frequent financial difficulties or working capital shortfalls can cause any business, even a well-established company, to fail. To prevent financial challenges from getting the best of you and your business, here are some common financial challenges and suggestions on how to deal with them.
Cash flow is the amount of revenue your business generates over a specific period of time. Maintaining consistent cash flow is a constant struggle for many small business owners. Regardless of how many assets a business has, without sufficient cash flow, a business is doomed for failure. In addition to having sufficient cash flow to handle recurring expenses such as lease payments and payroll, a small business needs enough revenue to cover supply purchases, business taxes, equipment maintenance and more.
One method for improving cash flow is adjusting your payment processes. You can start by paying bills closer to the due date rather than early. While it may seem like a good idea to pay each bill as soon as it comes in, this could significantly reduce your cash flow. By waiting to make your payments while receiving payment from your customers, it will help to stabilize your cash flow. It can also be helpful to shorten your customer’s payment window. If you normally allow 60 days for payment, change it to 45 or 30 days.
You may want to consider streamlining the payment process for your customers as well. Accepting major credit cards and offering an online payment portal provides customers with a quick and easy way to pay. Sending out payment reminders can also encourage your customers to make more timely payments.
Sufficient working capital is neck and neck with cash flow when it comes to financial challenges. As opposed to cash flow, working capital is the difference between the current assets and current liabilities of a business. While cash flow is used to cover all of your basic business expenses, capital is what is used to finance business growth. In addition to stabilizing your cash flow, budget and funding play an important part in maintaining working capital.
Creating and sticking to a budget is crucial to accumulating working capital and growing your business. Start by totaling all of your sources of income so you know what you have to work with. Next, add up all of your recurring fixed expenses like facility and equipment lease expenses, payroll and loan payments. Then make a list of fluctuating expenses such as marketing, travel, and business supplies and included additional funds for unforeseen expenses and emergencies.
Both your fixed and fluctuating expenses must be covered by your total income. Once you’ve determined a budget for each type of expense, any remaining income can be used toward business growth. The key here is to be realistic when creating your budget, reviewing it monthly to see if you’re on track and making adjustments if you’re not.
Once the budget is put in place, it’s not uncommon for a small business to have minimal working capital left over to invest in growth and obtaining funding can be difficult. Although approval rates have been increasing slowly since the recession, currently, only one in four applications for traditional business loans are approved. One of the biggest contributing factors is business credit.
Not understanding how to interpret credit scores or what to do to improve and maintain them can stand in the way of receiving small business funding. To start with, you should have a business credit card for everyday expenses and pay that and all other bills on time. Work with suppliers that report to credit bureaus whenever possible and follow the same basic guidelines as with personal credit. Keep in mind, your personal credit can impact your business credit. If you have less-than-perfect credit, you may want to consider alternative financing options.
To take the conventional route for obtaining small business funding you must be very careful to maintain a high credit score and have time to wait. Business owners often rely on quick and painless access to small business funding to help them keep their doors open and promote business growth.
If you’re a business owner with less than perfect credit, Capflow Funding Group may be able to help your business find the best funding solutions available to provide you with the working capital you need. We work with business owners across various industries to help them keep their businesses on track. Our team will work tirelessly to see you through to success. Contact us today to find out more about invoice factoring and our other funding options, and how they can help your small business.
