Unless you have an absolutely perfect business plan – and let’s face it, no novice entrepreneur does – your business will probably slog through a period when your cash flow isn’t exactly what it should be. Your business should always have sufficient cash on hand to pay employees, buy resources, and perform other essential tasks. When your cash flow runs dry, you must have a fast and easy solution for getting more green.
You aren’t the first entrepreneur to struggle with cash flow, and you won’t be the last. Fortunately there are several options to help. Here are seven tried-and-true solutions to avoid being a cash-poor business.
1. Cash Advances
Merchant services and digital payment solution providers typically offer advances on your future sales, allowing you to get cash now instead of later. Other names for this service include “working capital loans” or “lines of credit,” and some offer attractive terms – including minute-long application processes. This is a viable option if your business is growing so explosively that you need more equipment or supplies stat, but if you can’t guarantee that you’ll pay off the advance in a short amount of time, your business could drown under notoriously exorbitant interest rates.
2. Invoice Factoring
If your business is B2B, you undoubtedly suffer the agonies of slow-paying clients. Factoring companies will gladly buy your unpaid invoices, ensuring you receive the majority of the invoice while waiting for the client to pay up. Typically, invoice factoring provides more value than other ways of improving your cash flow – but you should research your options first, making sure to understand the fee structure before signing away your invoices.
3. Deferred Card Payments
Some credit companies are more than willing to offer reliable users the option of deferred payments, which could buy you some cash as well as some time before you must pay it back. Deferred payment plans differ in structure. You might seek a plan that divides a sum into equal portions to be paid in certain intervals – like some university tuition programs do – or you might prefer a grace period, during which you incur no fees or interest for the credit you use. Like cash advances, this method is best if you are confident in your ability to pay your debt in the near future.
If you don’t need much cash to grease your business’ wheels, you might consider acquiring a micro-loan. Typically only $50,000 or lower, microloans are designed to provide businesses a quick infusion of cash, often for starting capital. Such small loans are often faster and easier to acquire than traditional loans, but they do have similar interest rates and payment periods. You can find a reliable microlender through the Small Business Association.You can also look into Kabbage, a small business lender.
Crowdfunding is the wildly trendy business funding method of recent years. Instead of begging traditional investors or banks for cash, you can ask your potential consumers directly for financial aid. Websites like Indiegogo and GoFundMe help you develop and manage a crowdfunding campaign which could bring in the cash your business needs to survive.
However, it is important to note that the popularity of crowdfunding makes marketing exceedingly important. Unfortunately, some businesses spend more cash trying to gain visibility for their crowdfunding campaigns than they earn in the end. Therefore, you must be confident in your marketing abilities and have a solid plan before banking on any crowdfunding cash.
6. ROBS Program
With any luck, you already have a happy little retirement account brewing in the background of your personal savings. If you have enough saved, you might consider shifting some of your 401(k) into your business through a Rollovers as Business Startups (ROBS) program. The biggest boon of ROBS is you can avoid taxes completely through your entrepreneurial efforts. However, it is important to note that ROBS programs have strict and complex rules, and if you fail to adhere to them, your money could be taxed like crazy, sinking your business and your retirement in one fell swoop.
7. Home Equity Loans
It can be dangerous to leverage your home to fund your business – but if your otherwise rock-solid business is in desperate need of cash, a home equity loan is undoubtedly a fast way to get it. Still, before you risk your personal assets, you should make certain that the cash you gain won’t go to waste. After all, your family could end up homeless due to a business mistake with home equity loans. Be wise and know the risks before you commit to this type of loan.
It’s so important to understand the risks and rewards of whatever financial decision you make, especially when it’s one that could have serious repercussions. Do your homework and figure out the best course of action for yourself, your business, and your family.
How do you keep your business on financial track?
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