Small Business Cash Flow Challenges and Strategies for Growth.

Cash flow is the lifeblood of a business. Every successful company needs a steady source of income and cash on hand to pay bills and make payroll. Unfortunately, many business owners struggle with cash flow problems. Often, it's through no fault of their own, but it's important to know how to effectively deal with the factors that are stopping the flow.

According to a 2013 survey from office supply retailer Staples, 28% of small business owners say they lose sleep over cash flow problems; 48% say they pay others before paying themselves; and 28% had experienced cash flow problems such as postponing hiring.

Cash flow doesn't have to be complicated. Indeed, most cash flow problems have common causes. Many businesses end up in a cash flow crunch due to unexpected expenses (for example, costly repairs to equipment, replacing malfunctioning technology or a natural disaster) or too much money going out each month (such as ongoing expenses that have quietly crept up to an unsustainable level). Resolving a cash flow crisis requires that business leadership take a renewed, vigorous look at their ongoing cost structure.

Every business owner should have a rigorous process in place to track expenses on a monthly basis and project future expenses for the months ahead. A pro-active small business owner keeps an eye on cash flow, so that the business is better positioned to anticipate challenges as they arise.

Often times, a cash flow loan may be your best solution to adapt to cash flow shortfalls. For this type of business financing, lenders provide you funds and use your future expected cash flow as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future by giving the lender the rights to a predetermined amount of these receivables. These are primarily used for working capital or take advantage of short-term ROI opportunities. Your credit scores will usually be checked, but they play less of a role. As the name indicates, the lender is more concerned with inspecting your cash flow (usually bank statements) to approve your application. Turnaround time is another great feature of a cash flow loan, as funding usually takes place in a matter of days.

There are numerous reasons a business owner might choose to borrow, but here are some situations where a short-term cash flow loan could make the most sense:

  • Overcoming a short-term seasonal cash flow bump: Many seasonal businesses require a little extra capital to meet expenses during a down time or before the busy season starts.
  • Unexpected expenses: It’s not uncommon for businesses to experience unexpected expenses like a major plumbing problem or other maintenance issue they might not have the cash flow to cover.
  • New project start-up costs: Ramping up for a new project or a new customer sometimes requires additional resources that might exceed a business’ ability to cover with cash flow, but will be recouped in 60 or 90 days.
  • An opportunity to purchase inventory at a steep discount: A temporary cash flow loan is a good way to take advantage of an opportunity to purchase inventory that has the potential to increase profits.
  • Emergency repairs to business-critical equipment: When equipment necessary to the operation of your business fails, it likely doesn’t make sense to wait several weeks to start repairs. A temporary cash flow loan can be a good way to access capital to start those repairs right away.

Points to consider when determining if a cash flow loan is right for your small business:

  • Will it help you take advantage of inventory discounts? Imagine you have an opportunity to buy bulk inventory at a discount. A cash flow loan can help if you don’t have the money to make the purchase.
  • Will it help you say “yes” to a job? Say you own a restaurant and are asked to cater a big event in the near future. To jump on the opportunity, you’d need to hire a few more servers, and you don’t have the cash. A line of credit or short-term loan could allow you to say “yes.”
  • Are you entering a slow period? Another example: You own an ice cream shop and winters are slow. Ideally, you’d budget for this by saving more in the summer months, but a cash flow loan could get you through in a pinch.
  • Do you have a lot of outstanding invoices? Many small businesses experience uneven cash flow because their customers pay invoices weeks or months after receiving their product or service. If you’re in this situation, a short-term small-business loan could bridge the gap, but consider invoice financing instead.

Short-term cash flow loans are best used for short-term projects that would divert money from day-to-day expenses but ultimately grow your business, like taking on a big contract with a major company or adding extra seating in your restaurant. If you need cash fast, a cash flow loan may be your lifeline. Call (855) 998-LVRG or click below to get started!