The survival of your business is not based on sales alone, but on how you invest in your company over time. Those early investments can be the key to continue to be a viable player in your industry.
Running low on capital can limit your investments and also reduce your profitability over the long-term, putting your business at high risk of failure. You need to find ways to stretch your capital and that involves being familiar with cash flow management. Doing so will give your business the best chance of survival.
To assist you in effectively managing your capital, here is a simple guide that can help you address areas to keep your business running effectively.
One of the best ways to address cash flow management is to start by creating a cash reserve. You need to have an idea of what your monthly expenses are, but once you know, then you can set a goal for the amount of cash reserve you need to have. This reserve can be a cash cushion during a slow period or if your company is hit with unexpected business expenses.
Doing so might limit the amount of cash you have available for advertising or product and service development, but it can be worth the sacrifice if you struggle when it comes to handling cash.
What Is Your Balance?
No matter what, you need to be familiar with the numbers. That means knowing what is in your account, plus understanding your business expenses from month to month. When you know your outflow and income, then you can make smart decisions about what to spend and when.
Never assume that you have the money for a purchase or to cover the cost unless you check your account first.
Creating Financing Options
One of the biggest issues for most small businesses is getting invoices paid on time. If a client is a slow-pay, then it can impact your ability to pay for materials for large purchase orders. However, you can be proactive by creating incentives for your clients to pay on time, such as a small discount.
If you have to buy materials for a large order, it could negatively impact your cash flow. To avoid that, consider using purchase order financing or asset-based finance, thus allowing you to finance the materials temporarily without depleting your current cash reserves.
Look for Savings
Cutbacks can be a way to reduce your costs while you access your business model and business plan. These cutbacks can include reducing your employees or benefits. You may find other areas that you can simplify your overhead costs and limit your spending to rebuild your cash reserves.
Working Capital Loans
Working capital loans can help you to balance your cash flow from month to month. You can also use these loans to make key upgrades to your business. It can also be a way to get the immediate benefit of a capital improvement, while paying for it over time.
There are a variety of financing options for commercial businesses that can help you manage your cash flow effectively.
When you start a new business, there are risks involved. Failure is possible, but if you manage your cash flow effectively, you can reduce that risk, particularly during the first few years when you are starting out.
As an entrepreneur, you need to be aware of your monthly expenses and the amount of cash you have on hand at any given point during the month. Doing so will help you to avoid any surprises as you manage your business’ cash flow.
If you are looking for financing options to assist you in growing your business, then contact us today for more information.
Penn Commercial Capital can help you secure your next round of financing or business loan in an efficient and ethical manner. We’re proud to champion the small businessperson and can finance clients seeking loans from as little as $100,000 up to $100 million.