When you begin to develop and expand your business, it’s possible that you will start to face serious cash flow problems. If you aren’t careful, such issues can start impacting your company up to the point where everything stops. As a matter of fact, 29% of companies fail because they ran out of cash.
The issue can be particularly hard to handle if it’s related to the short-term cash flow within the organization, which can end up with your struggling to pay salaries and overhead costs, while the business growth grinds to a halt. To help you overcome this, we created this guide with the best ways to help you resolve your short-term cash flow issues.
Small business line of credit
A small business line of credit is similar to a credit card. You only pay interest on your existing outstanding balance, not on the complete credit line given to you. When the balance is repaid, the amount of available credit increases and is available for borrowing again in the future.
A business line of credit might be a better option than other types of loans if you don’t require access to big amounts of money right away but may need such a safeguard in the near future. You can apply online and obtain approval within minutes. You typically don’t have to provide any additional documentation beyond basic business and personal information.
Short-term business loans
Short-term business loans are built to be paid immediately so that you can settle any cash flow problems right away. Unlike typical business loans that have a duration of over several years, short-term loans are better for small business owners that want to repay their debts in the coming months.
When your cash supply is running low, you don’t have time to be patient. Using short term business loans may be your best bet, especially in if other loan options are limited by your credit history. They are relatively easy to get approved and although they sometimes carry a higher interest rate (APR), the total cost of capital can be less costly than longer-term options with a lower APR.
Raising prices and flash sales
If your company is doing fine, then you probably don’t need another quick infusion of cash to sustain your business. The simplest way around this – particularly for businesses that sell physical products and have healthy margins – is to run a flash sale. A well-executed flash sale enables you to create an instant surge in revenue. Although the profit margins will be lower, that’s secondary in this case. You need cash, not better margins.
Sometimes, your sale department is fine, and yet you have trouble to keep going on the cash flow front. If this is the case, a flash sale won’t cut it. You’re already moving your inventory at a healthy rate. The issue is the lack of profitability. In this case, a wiser option would be to raise prices. While you will lose a part of your customers, those which are most price sensitive, you’ll discover that the majority will stay around and more than make up for the lost sales.
Big overhead costs
Overhead expenses are the costs of running a company which aren’t directly tied with selling a particular product or service. These include rent, utilities, telephone, etc. Sometimes overhead costs get out of hand relative to your business’ revenue. Big overhead costs can hurt your company’s cash flow. What makes them troubling is their persistence. These costs affect your cash flow daily until you correct the issue.
The solution for this is simple, but hard to do. Audit your costs and cut back wherever you can. Be careful about not cutting too much, since such an approach can also damage your business. If there isn’t an option for cutting back, consider some cheap alternatives. As a matter of fact, every company should audit costs as much as it can, to make sure that overhead costs remain low as much as possible.
Solving your cash flow issues will require you to smartly combine financing solutions, such as short-term business loans, and non-financing solutions, like having a flash sale. Only this can guarantee solving the cash flow problems, both in short- and long-term. If you don’t take seriously your cash flow issues, they will grow so big that they will threaten the survival of your company.