A wise man once said, “It’s not about turnover; it’s about what’s leftover.” When you run a small business, slow cash flow can often cripple the business – and it can quickly cascade into business failure. With small business finance much more expensive these days, what can be done? How can you ensure small business financial success? Here are five tips to ensure you keep cash flowing, even when times are lean.
Create a financial plan that considers your seasonal fluctuations
Are you a seasonal business? Is the phrase “This Quarter sets us up for the next three?” Your financial plan should consider these seasonal changes and plan accordingly. Perhaps that means leasing space only when you need it and having support staff perform their duties at home; restructuring loans for seasonal repayments; consolidating loans; and other forecasting that will help smooth out any bumps along the road. You don’t want to file for Temporary Debt Protection down the road.
Match liabilities with asset terms
The most important rule of business finance is to buy long-term assets, like property and cars, with long-term liabilities, like mortgages and car loans. The same is true for short-term assets like inventory and items that people use up quickly. You have to pay for them with short-term debts like working capital or lines of credit. Mismatching these can be bad for business, especially when it comes to retail industries. As a business owner, you should separate your long-term assets and liabilities from your short-term assets and liabilities. Even though you might not want to take on more debt, it could help your business grow in the long run.
Avoid credit cards
Even if you are in desperate need of inventory or outsourcing, try not to put it on the company credit card. The margins, especially in FMCG or retail, will not recoup the interest costs. Credit cards accumulate interest over time and if they aren’t paid off quickly, will balloon out into huge sums.
Consolidate small debts with a personal loan
If you have already spent up big on your credit cards, don’t despair. you can still look into one loan that you can pay off gradually. It could be a good idea to combine your minor loans, such as credit card debt, into one loan that you can pay off gradually. You also benefit from this since the interest rate on all of your loans is decreased – credit card interest may be as high as 20 percent - a debt consolidation loan might be half that rate or even less. If you make more than the required minimum payments, this all becomes simpler to handle and may even hasten your journey towards debt freedom.
Consider invoice factoring – but don’t rely on it
If you have long invoice payment terms – 60, 90, 120 days – it can put a big strain on cash flow. One option is to consider invoice factoring or invoice finance. The first upside is that it keeps operational cash safe. It is viewed as a cheap approach to obtain early sales value by low-risk lenders. You don't need collateral because the invoice itself serves as security for the loan. But be careful not to rely too much on invoice factoring, since this might result in unexpected cash flow problems – remember the second point on the list!
