For some time now, one of the biggest business topics discussed is the struggle small businesses encounter when attempting to secure the capital they need to grow. In general, banks are hesitant to lend to startups and small businesses. While this is a very real problem that deserves attention, little is said about when a business should seek different capital. How does a business know that it’s the right time to seek cash solutions?
Just as it is important to have adequate access to capital during the startup phase, the same is true during a business’ growth phase. However, borrowing money for your business at the wrong time can be a huge mistake. The number of times your business really needs to seek financing solutions – rather than cash from profits – are limited. So, what are some situations in which boosting available capital would benefit your business?
Cash Flow Troubles
As you’ve likely heard time and time again, effective cash flow management is a must if a business is going to succeed. Even so, negative cash flow is a common problem for business owners and is typically the result of poor planning. Failing to implement a cash flow budget, being lenient with unpaid invoices and engaging in impulse buying are just a few cash flow mistakes that can lead to cash flow troubles. Don’t make the mistake many business owners make of focusing solely on sales and profits. If your business’ cash flow has been mismanaged, it might be time for your business to look for outside capital.
The type of growth and expansion opportunities your business will encounter depends on the nature of your business (new commercial or additional business location, renovations to an existing location, diversifying, additional marketing, research and development, etc.). Regardless of your business type, the fact remains that a lack of sufficient operational cash results in lost opportunities to expand, little to no flexibility for growth and an inability to stay ahead of the competition. Securing extra working capital will fuel your business during growth and/or expansion, while allowing day-to-day operations to proceed uninterrupted.
During periods of expansion, it is often necessary to hire additional staff to aid in that growth. When faced with hiring and payroll decisions, some businesses choose to cut from other areas in the business. Other business owners, on the other hand, opt to seek funding to assist with hiring new employees and cover payroll. If you’ve done the math and are unsure if you can afford to hire and pay additional employees, it might be time to seek cash solutions elsewhere.
Every business will experience its share of mountains and valleys. However, it’s the business that plans financially for these low points that thrives. Part of your planning strategies should include maintaining a cushion of cash for potential risks. In fact, some recommend setting aside a cushion of six months worth of operating expenses. This extra cash will ensure your business has the flexibility to meet any unexpected costs that can – and will – arise; this is especially true for seasonal businesses.
Depending on your business, growth is usually accompanied with additional needs; such as machinery, equipment and vehicle purchases. Even if your business has enough working capital to cover its daily operating costs, the extra cash required to make asset purchases is not always readily available. Seeking cash solutions elsewhere can help your business secure the necessary working capital to make such purchases.
Why Invoice Factoring?
With so many different business funding options – both traditional and alternative – it can be hard to know where to start. To make the situation even more challenging, the list of options tends to narrow considerably for startups and small business; traditional banks typically shy away from the “risks” surrounding a startup or small business.
Invoice factoring offers a business owner many advantages. This process involves a factoring company purchasing your company’s invoices, and then quickly advancing the working capital you need against your unpaid accounts receivable. Because the factoring company is purchasing your existing invoices, it involves a much lower risk than other alternative options. (A merchant cash advance, for example, is based solely on prediction - rather than a fixed dollar amount.) Because the factoring company is advancing cash your company has already earned, you gain flexibility without the burden of debt.
Security Business Capital specializes in helping companies secure the funds they need to operate smoothly, grow their business and take advantage of opportunities. Security Business Capital’s invoice factoring services provide the flexibility a rapidly growing business needs to prosper. If your startup or small business is seeking alternative financing solutions to meet expenses or fund expansion, Security Business Capital offers a fast, simple and hassle-free set up process. Temp staffing, oil and gas, transportation, manufacturing and distribution, business services and government are just a few of the industries in which Security Business Capital provides services.
To learn more about Security Business Capital’s invoice factoring option (or other services, like PO financing), contact Security Business Capital for a free quote or consultation.