Helpful strategies to manage your next cash flow
Helpful strategies to manage your next cash flow
Author: Sara Amato | October 10, 2018
Porters Bar & Grill in Boston is a vibrant neighborhood for concertgoers and sports fans alike. Located near TD Garden (home to the Celtics and Bruins), the pub is a popular destination for after-work travelers looking for comfort food and local beer.
But in the summer, the area goes dark, the ice on the hockey rink melts, and event facilities have to attract their employees. With the busy season heavily concentrated from October to April, the fragile summer months lead to a difficult cash flow situation for Porters.
Not all businesses experience the same level of seasonality as Porters, but most businesses have predictable times of the year when business activity slows down significantly. This fluctuating turnover makes it difficult to manage cash flow throughout the year.
The harsh reality is that most small businesses fail within 5 years because they don’t have the capital to open, according to a new source. research. The longevity of businesses in specific industries is closely tied to the cash flow challenges each business faces:
- Real Estate: 9 years
- Health care service: 8.8 years
- High-tech services: 6.2 years
- Construction: 5.1 years
- Personal services: 4.9 years
- Businessman: 4.7 years
- Repair & Maintenance: 4.6 years
- Retail: 4 years
- Restaurants: 3.7 years
The study also revealed that working capital loans and lines of credit can help small businesses manage occasional cash flow and extend their operating life. Research shows that cash flow management is just as important as liquidity. If a small business cannot manage cash flow properly, it is unlikely to grow. With a loan to get through the tough months and get the cash flow back on track, Porters Bar & Grill has gone beyond its lifespan and is positioned to increase sales year on year.
Many how to manage cash flow in seasonal businessor to handle the peaks and lows in revenue that every business experiences. But when it comes to using smart finance to solve this big problem, the secret lies in being proactive in accessing capital. Sometimes the best money making apps can help you get extra income.
Here are five ways to put this principle into practice.
Sponsorship invoices are easy to confuse with invoices factoringand it’s helpful to know about both. Bill factoring allows your business to sell your invoices at a discount in exchange for a cash sum. Bill factoring can provide immediate working capital to help with any cash flow issues and is generally easier to get approved than traditional bank loans.
However, traditional bill factoring often requires you to sell your outstanding invoices to a third-party factoring company. Then your customer pays the factoring company — not you. A slightly different approach is called bill sponsor can help you avoid this less than ideal repayment scenario, giving you access to a revolving line of credit that won’t affect your customer relationships.
Business credit card
ONE business credit card great for capital upgrades such as computers but can also be useful for emergencies and slow seasons. Like personal credit cards, business credit cards offer the benefit of rewards like cash, points, or miles based on how much you spend.
If you have a hard time staying on budget or tend to overspend, be careful with the card. Also, be aware of annual fees and interest rates, and take advantage of promotional rates when you can. Always do your research before applying.
Line of credit
ONE business credit line is a loan that allows you to withdraw money, when you need it, from a certain amount instead of a one-time loan. Business lines of credit are a great option if you’re looking to purchase goods, grow your business, and/or expand your company, and they can also be an invaluable lifesaver in an emergency. level or cash flow in difficulty.
ONE short term business loan can keep your company running through the seasons more slowly and help you cover unplanned expenses. They are also useful to help you finance unexpected growth opportunities. Short-term loans typically offer smaller funding amounts at higher interest rates — around 10% and higher — and they have shorter repayment periods. It’s not uncommon for lenders to ask borrowers to repay their loans on a weekly or daily basis.
Cash progress Fast and non-secure, which means you won’t have to lose any personal or business assets if business goes awry. Since there is no fixed term with cash advances, they can be a great solution for businesses that need to pay less during the slower months.
Cash advances often come with high annual percentages, and this can make them much more expensive than a traditional business loan. Business owners should proceed with caution to fully understand the terms and appropriately check any cash advance provider before joining. Make sure you understand your provider’s interest rates, how they compare to other loan products, and how they compare to other providers’ rates.
When it comes to cash flow management, aim for offense, not defense. When you’re proactive about accessing capital, you can build a safety net for cash flow emergencies and better support innovation and block business growth opportunities. Your career is missed. Financially proactive will allow you to create things, instead of waiting for something to happen so you can take your business to the next level on your timeline.
Check back next month for part 3 of our series, How smart finance can solve big problems for small businesses, where you’ll learn helpful strategies on how to stay passionate through the ups and downs of running a business.
Regardless of the size, duration of the business, or the industry, every small business faces countless challenges on a daily basis. Access to capital is arguably the biggest barrier to every business owner’s ability to deal with these difficulties and problems. This 5-part series outlines some of the most common roadblocks for small business owners and smart, effective solutions to overcome these challenges. Learn how to deal with hiring frustrations, cash flow woes, business owner burnout, customer retention issues, and time management struggles, and how to be proactive instead of react when accessing capital that you need to face these problems confront.