For many companies, cash flow problems can feel like an eternal winter. When funds begin to dry up, business slows down and growth plans go into hibernation. If this sounds familiar – it may be time to spring clean your business finances.
Step 1: Refresh your spending priorities
A new season is the perfect time to review your company’s financial situation. Keep track of all your expenses. Then assess and clarify your spending priorities, with the goal of optimising working capital.
You need funds readily available to cover core expenses, pay suppliers on time and service any debts you may have. A good reputation in the market and a solid credit record are much more valuable to your business than the latest equipment or business class flights when you travel.
Once you have eliminated unnecessary expenses and you still anticipate periods of low cash flow (perhaps due to seasonal demand or slow-paying customers), set time aside to explore your business financing options thoroughly. It can take months to secure bank finance, so be sure to explore all funding routes available. (We’ll discuss this in more detail later).
Step 2: Tend to your cash flow
Strong cash flow management practices are critical, especially in a volatile economy. This is especially true for SMEs. Studies show that 82% of small businesses that fail do so due to cash flow problems.
Keep money coming in by setting up a good invoicing system, which enables you to invoice swiftly and accurately after goods or services have been delivered. Keep tabs on payment due dates and react swiftly when customers forget to pay their invoices.
Establish a cash flow budget, or refine your existing one, so that you have a clear framework for managing inflows and outflows of working capital over time. This will help you to predict and plan for poor cash flow periods, giving you enough time to research your business finance options, if needed. Never get caught short of the working capital you need to keep your business healthy.
Step 3: Choose services over products
One way to save money on office space, equipment, software and more is to rent rather than buy. You can get many things ‘as-a-service’ these days, where you pay for the resources you need on a monthly or annual basis, rather than buying these outright. This way, you can scale your resources up or down to suit your business needs and budget. You can also save on maintenance costs – and in the case of technology-driven solutions, you can upgrade to the newest model much more easily and cost-effectively.
Step 4: Allow your business to blossom
Did you know that growth is a key cause of cash flow problems in many organisations? While growth is a marker of business success, it can also be its downfall. With growth comes greater operating expenses. If you’re going through an expansion phase, you’ll need a working capital facility that grows with your business so that you can cover your burgeoning running costs adequately.
Step 5: Branch out, explore other finance options
Many companies think that applying for traditional bank finance is the only route available when they need extra capital to operate and grow. But this can be a lengthy and frustrating process. Perhaps it’s time for a fresh perspective on business finance?
An alternative financing option like factoring provides your company with fast and flexible access to working capital, against your accounts receivable. If you sell on credit terms business to business, you may be waiting months for your invoices to be paid, which puts pressure on your cash flow. Factoring alleviates this pressure – providing you with the working capital you need to run your business, negotiate early settlement discounts with suppliers, grow your sales and much more.
Clean house with Merchant Factors
Merchant Factors is an independent factoring company with over 30 years of experience in delivering tailored business finance solutions to businesses big and small.
For fast, flexible business finance – contact Merchant Factors today
Finance beyond the Numbers.