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The Hardest Part of Growing a Business

According to the U.S. Bank study conducted by Jessie Hagan, “82 percent of businesses fail due to cash flow mismanagement” 

You know that running a successful business requires first and foremost, a clear understanding and knowledge of the financial aspects of the business. Companies of all sizes need at least some sort of financial planning assistance in order to grow. A plan needs to be in place, especially during those growth years when problems with cash flow management are most likely to arise.

Businesses operate on money and its availability (working capital) determines everything from how you’re going to pay your bills, to making your rent payment to being able to upgrade equipment and materials to keep up with your competitors. 

You need to know where every single dollar is coming from and where every single dollar is going.

If you don’t stay on top of your cash flow, you could put your business in jeopardy.

FACT : Just because a company makes a profit does not mean that they are cash-flow positive.

Let’s imagine that a company makes $25,000 in sales and has $20,000 in expenses one month. There is no guarantee they will collect all $25,000 from those sales, especially if their customers are given terms (i.e. net 15 or net 30). If at least $5,000 or more of those sales are not paid upon delivery, the business will be forced to cover a portion (or all) of the $20,000 in expenses. This is where a lot of businesses get into trouble and would benefit from additional working capital.

Some of the most significant monetary challenges your business can face:

  1. Limited cash flow – if capital expenditures or outstanding receivables are draining your bank account, your ability to be profitable will be challenging if not impossible.
  2. Effective Budgeting – failure to stick to a budget can affect your ability to analyze and forecast expenditures and change direction quickly when needed. 
  3. Tax Compliances – One of the biggest issues that businesses face regarding federal taxes isn’t payment – it’s the cost of compliance.
  4. Raising capital – a lack of capital can prevent a small business from hiring, thereby preventing expansion into additional markets and exploration of new opportunities.
  5. Preparation for unforeseen events – how many people predicted a global pandemic? Not many, and unfortunately because of that, thousands lost their businesses and livelihoods. 
  6. Excessive Debt – from varying interest rates to price increases on cost of goods and services, unexpected costs can add up. And debt can grow exponentially when these surges are combined with slow selling seasons.
  7. Late payments – late payments typically come with late fees and the longer you wait to pay them, the quicker they add up.

How do you overcome these challenges? 

It’s not about overcoming these challenges – the real question is how do you acquire the cash liquidity needed to keep your company not only operational, but in a growth stage?

There is more than one solution, but utilizing a working capital loan or leasing equipment are often your best bets, depending on your business and its current state. There are lots of benefits to both. You can read more about working capital benefits and benefits to leasing equipment to understand what solution will work best for you.

In the meantime, here are some other helpful hints to get you on the road to abundant cash flow:

  1. Keep a Line of Credit
    You’ll likely need access to funds other than your initial investment to keep your business going. Taking out a revolving line of credit helps many businesses stay afloat.
  1. Minimize Overhead
    Everything you spend in a business eats into your profits. Prioritize only necessary expenditures (equipment, staff, space, etc.) to minimize costs.
  1. Track and Monitor Spending
    The more you know about what’s coming in and going out, the easier it will be to plan for your future and invest in your growth when the time comes.
  1. Invest Appropriately
    Investments are necessary for growth, but don’t rush into “too good to be true” ventures. Take your time to assess the potential outcomes and choose the opportunities that best fit your business model and mission.
  1. Maintain Cash Reserves
    Cash is king. And as far as we know, it probably always will be, so maintaining some level of cash at all times is a must when you’re in business.

Need help with cash flow management, a working capital loan, or equipment financing? We can find the path that works best for your business.