Cash flow is the net change in your salons cash position from one period to the next. If you take in more cash than you send out, you have a positive cash flow. You have a negative cash flow if you have more cash outflow than inflow. Cash flow is a key indicator of financial health. Even with the fanciest brand name, marketing gimmick, or trendy stylists, without a healthy flow of cash, no salon can survive. Having a solid cash flow is not just about managing a healthy business; it’s a matter of life or death for an salon. Though it may sound extreme, salon owners must pay attention to their cash flows on a regular basis, if not daily.
Cash is King
The importance of strong cash flow is aptly stated in the common expression "cash is king." The premise of this is that having cash puts you in a more stable position with better buying power. While you can borrow money at times, cash affords you greater protection against loan defaults or foreclosures. Cash flow is distinct from cash position. Having cash on hand is critical, but cash flow indicates an ongoing ability to generate and use cash.
Keeping Up With Debt
When you borrow money to buy brewing equipment and inventory, you essentially use future cash flow to make your purchases. Inherently, you need positive future cash flow to pay for your debt commitments. salons may have have long-term loans and short-term credit accounts with vendors. Each loan requires monthly, weekly, or daily payments. The obligation to make these payments on an ongoing basis restricts your free cash flow, which is money available to invest in growing your business.
Along with debt management, strong cash flow provides the comfort and capabilities a business needs to invest in growth. Building a new salon or salon, expanding your current salon, investing in marketing and advertising, renovating your storefront, improving technology, providing more training and purchasing more inventory are among the ways your salon can grow and improve with strong positive cash flow. Getting to a position of excess cash flow helps your company operate in a strategic, proactive way, rather than a reactive, defensive way.
Cash flow also gives your salon greater flexibility in responding to emerging dilemmas or making critical decisions. Confidence in cash flow makes it easier to make critical purchases in the near term rather than waiting. It also allows you to disperse cash in the form of dividends to shareholders or owners. This strengthens the bond between the salon and its owners. You also have the ability to offer favorable credit terms to attract new buyers if you are less desperate for cash.
Uneven cash flow is one of the biggest challenges of salons throughout the country. In a perfect world, you’d walk into your local bank and walk out with a business loan long before you wound up in a cash crunch. Well, those days are long gone. If you haven’t been in business at least two years, or lack good credit and collateral, chances are a traditional bank loan is never going to happen.
In order to deal with this shortfall, a cash flow loan to fuel your salon may be your best option. For this type of business financing, lenders such as LVRG 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, LVRG is 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.
A cash flow loan may be used for any business expense, but some common uses are:
- Working capital
- High ROI short-term opportunities
- Purchasing highly-discounted inventory
- salon expansion
- salon equipment
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 salon, like taking on a big contract with a major distributor or adding a few extra chairs in your salon. If your salon needs cash fast, a cash flow loan may be your lifeline. A salon cash flow loan is also a great fit for salons that have SBA or bank financing, as LVRG is able to subordinate to your current UCC lien filings.
LVRG Funding is one of the nation's largest most trusted resources of cash flow loans and they have successfully funded hundreds of salons with cash flow loans. Want to know if a cash flow loan is right for your salon, give us a call (855) 998-5874. We're here to help!