The cash flow needs of small businesses
A strong cash flow can make or break your small business. You need to watch your cash flow carefully and make sure it is not in the red. If you struggle to maintain control over your cash flow, it won't be long until you find yourself out of business. There are several solutions out there that can help you manage your cash flow and prevent you from losing your small business.
One of the best ways to control your cash flow is through invoice factoring. Invoice factoring involves selling your invoices to a factoring firm in exchange for cash today. After the factoring firm has been able to collect the rest of the funds, you will be able to earn an additional 10 - 15% of the invoice total. This is a great opportunity for small businesses as they are able to collect the funds they need to sustain their cash flow and they don't have to deal with the collection process that the factoring firm will need to deal with. Invoice factoring is easy to acquire as you don't need to pass a credit check. Instead the factoring firm will take a look at your cash flow, your customer's payment history, along with the amount of revenue you earn. If they feel that your customers will pay the invoices in a timely manner, it will be easy to gain approval and to have the factoring firm start working on gathering the money. Small business owners have a chance to take larger orders as they no longer need to wait 30-60 days for the payment to come in from the customer. This way you have free money to pay for your inventory and other small business needs.
One other option you have is to turn to Small Business Administration loans for cash flow problems. The SBA loans are designed to help small businesses that are struggling. Usually you can acquire a loan amount that is $25,000 or less to help pay for your cash flow problems. The interest rates average around 7 percent or higher, but you can acquire the money within about 5 days after submitting your application. The other thing about SBA loans is the payment terms are usually very generous. You only need to pay about $60 per month on a $5,000 loan and the funds will be wired directly to your business bank account.
A lot of small business owners use their personal credit to secure a loan. You can acquire a personal loan if you have a solid income and a credit rating of at least 680. The downside to personal loans is that you will end up paying high interest rates on the loan. The interest rates are usually around 23% for a personal loan. If you use collateral to secure the loan, they will be much lower. The other downside to personal loans is the fact that you are tying up your personal finances and your business finances. You need to be extremely careful about doing this as it does cause problems when you are dealing with audits.
Watch your expenses
One of the biggest culprits to your cash flow is the amount of money you have going out of the business. You need to keep track of your business expenses as they can cause a lot of problems for the cash flow. Talk to your vendors and see if you can put off some of your invoices so you aren't paying on them before your customers are providing you with the funding you need to pay for these invoices.