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- iHaveNet.com: Small Business Guide
Small Business Money Matters
Nearly every small business will face a cash flow crunch at some point, when money flowing into your company is not enough to cover short-term payables.
It can be triggered by any number of factors -- seasonal business fluctuations, late paying customers, or the loss of a key contract. While many people associate cash flow problems with declining sales, a crunch can even come through rapid growth, as companies need to pay for inventory or salaries while waiting for customer payments.
Regardless of the cause, a cash crunch has the potential to cripple a small business. But it doesn't have to. You can get your business ready to weather a short-term crunch -- and help ensure its long-term survival -- by using the following methods:
Prepare
The easiest way to reduce the impact of a cash flow crisis is to prepare for it before it hits.
Small business owners need to monitor their companies' finances constantly. Run financial forecasts at least quarterly, estimating sales and expenses, then modifying them as your receivables or payables change. Consider best-case, worst-case, and most-likely scenarios, using the budget that most closely resembles the current state of your finances. This may allow you to catch a cash flow dip and take actions to correct it before it becomes a full-fledged crisis.
Call in the reserves
Have back-up finances at your disposal to help you handle a cash flow crunch when it arrives.
Many small businesses use a revolving line of credit from a lender or bank, which makes short-term funds available on an as-needed basis. This allows a company to borrow money for a matter of days or weeks, and pay it back when promised receivables arrive. Other companies set aside funds in an interest-bearing "rainy-day" account that they can draw on in an emergency. In both cases, these reserves need to be set up before they're needed.
Finance against your assets
It may be possible to locate short-term capital from a commercial finance company by securing a loan with certain kinds of assets.
Accounts receivable financing allows you to use your billings as loan collateral. As you collect this income, you use the proceeds to repay the debt. Inventory financing uses your product inventory as collateral -- the more salable or "merchantable" your inventory, the more likely a lender will accept it as security. While both of these financing methods can get your business over a cash-crunch hump, they do carry significant risk. Failure to repay the loan can result in the financier seizing receivables (potentially damaging client relationships) or inventory.
Extend your payments
Small businesses that have a track record for paying on time might want to consider negotiating with vendors to revise payment terms.
If your small business is prone to seasonal fluctuations, you can request an extended payment arrangement at the time of purchase. By building up a reliable payment history, you will be in a better position with your suppliers to make this request, since you will have proven to be a dependable, credible customer. To build a positive payment record, be sure to pay bills early or on time during cash-rich months.
Keep planning
Once your company has made it through a crunch and gotten more control over its cash flow, it is time to take steps to prevent it from happening again.
Look for ways to build up reserves and put your small business in a stronger financial position. Review expenses to plug cash-consuming, profit-reducing leaks. Attack the top cash drains mercilessly to cut operating costs. Review your pricing structure to ensure it provides enough profit, and examine your customer base to locate clients that pay promptly and find ways to encourage their business.
Small Business Guide
- Starting Up Your Business
- Coming Up With a Winning Business Idea
- Common Startup Mistakes
- The New Rules for Startups
- Business Incubator FAQs
- Naming Your Business
- Researching Your Business
- Your Personal Savings
- Registration, Licenses, and Permits
- Getting a Tax ID Number
- Fast-Growth Startup Resources
- Structuring Your Business
- Overview: Corporations
- State Offices of Incorporation
- Incorporate Out of State?
- Writing a Partnership Agreement
- Choosing a Board of Directors
- Basics of a C Corporation
- Basics of an S Corporation
- Basics of an LLC
- Basics of a Sole Proprietorship
- Basics of a Non-Profit Corporation
- Basics of a Professional Corporation
- Basics of a General Partnership
- Basics of a Limited Partnership
- Your Company's Public Relations
- Elements of a Successful Public Relations Campaign
- How to Use Your Press Coverage Effectively
- Press Releases
- How to Write a Successful Press Release
- Sample Product/Service Press Release
- Sample Commentary Press Release
- Sample Event Press Release
- Sample Tips Press Release
- Sample Personnel Press Release
- Effective Competitive Analysis
- Managing Purchasing to Maximize Cash Flow
- Top Six Pricing Mistakes Businesses Make
- How to Avoid Lowering Your Prices
- Bidding Basics
- Hiring Staff
- Creating an Effective Job Description
- Do You Know How to Pick Them?
- Little-Known Hiring Resources
- Classifying Contract Workers
- Tips for Successful Interviewing
- What You Can't Ask in a Job Interview
- New Hire Paperwork
- Small Business Insurance
- Types of Insurance for Small Businesses
- Small Business Insurance FAQs
- Insurance Resources for Small Businesses
- Home Office Insurance: Myths & Realities
- Small Business Resources
- Government Resources for Small Business on the Web
- Resources for Women Entrepreneurs
- Fast-Growth Startup Resources
- Small Business Security Resources
- Taking Time Off
- Your Pre-Vacation Checklist
- How to Take a Vacation
- Learning to Delegate
- Getting Away When You Can't Get Away
- Preparing for Tax Season
- Year-End Planning Tax Savers
- 10 Ways to Pay Less in Tax
- 25 Common Business Deductions and Expenses
- Avoid These Common Errors and Audit Triggers
- Understanding the Home Office Deduction
- Corporate Income Taxes Primer
- Employment Taxes Primer
- Sales Tax Primer
- Sole Proprietorships and Partnerships Tax Primer
- How to Get a Filing Extension
- Year-End Reconciliation
- Getting the Most from Your Accountant
- Developing Accurate Financial Projections
- Cash Flow
- 10 Ways to Help Increase Your Cash Flow
- Cash vs Accrual Accounting
- Bookkeeping and Record Keeping Basics
- Quick Ways to Get Through a Cash Crunch
- Projecting Cash Flow
- Cash Flow Triage
- Getting Funding
- Cash Flow Through Factoring
- Small Business Investment Corporations (SBIC)
- Traditional Funding Sources
- Non-Traditional Funding Sources
- Your Company's Credit
- How to Read a Business Credit Report
- Credit Terms Glossary for Your Small Business
- How to Protect and Improve Your Business Credit Rating
- Give Your Business the Financing Edge
- Employee Compensation
- Employee Benefits
- Bonuses: How To Be Fair
- Workers' Compensation Q&A
- Keeping Workers' Compensation Costs Down
- Payroll Management Choices
- Key Elements of Payroll
- Working with a Payroll Service Provider
- How to Create a Business Plan
Small Business Money Matters - Quick Ways to Get Through a Cash Crunch
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