How can you avoid a cash flow crisis? 

Keeping up a healthy cash flow is one of the most challenging aspects of running a small-medium-sized business. Strong cash flow is essential as it provides access to working capital for day-to-day operations. However, even companies with solid profits and sales can struggle with managing their cash flow effectively. Fortunately, there are several helpful strategies you can implement to help your business avoid a cash flow crisis.

Setup a Cash Reserve

Establishing a cash reserve is crucial as you run your business and collect profits. As business owners receive payments from invoices or retail sales, it’s wise to allocate a portion of those funds to an interest-bearing account. This cash reserve can be instrumental in managing difficult months or quarters when cash flow may be tight. It’s important to evaluate your receivables regularly and determine a percentage of monthly profits to set aside for future downturns. By building a cash reserve, you create a financial safety net that provides stability during challenging times.

Maintain a Short-Term & Long-Term Budget

Evaluating your cash flows and analyzing historical results is key to effective budgeting. Your balance sheet provides valuable insights into your business’s financial position at any given time. As you manage and measure cash flows, it’s crucial to establish a forecast of expected sales in the upcoming months and quarters. A short-term forecast will provide you with valuable insight into how much working capital you can expect to have in the near future. By creating and maintaining a budget, you can proactively monitor and control your cash flow, preventing potential crises.

Consider Alternative Financing for Additional Working Capital

Many companies, even those with strong sales, struggle to manage day-to-day cash flows effectively. Throughout the lifecycle of most businesses, there comes a time when some form of financing is necessary. Whether it’s to operate more efficiently or to achieve growth objectives, financing options can provide the working capital required.

Traditional lending options, such as small business loans, business credit cards, and lines of credit, often place significant emphasis on creditworthiness during the application process. Additionally, they tend to have a lengthy application approval process. However, businesses with good sales but less-than-ideal credit scores can explore alternative financing options.

Companies like CFG Merchant Solutions offer funding solutions based more on revenues than credit, providing greater accessibility to working capital. An injection of additional funds can help fulfill more purchase orders, expand facilities, or acquire necessary equipment, facilitating business growth and stability. By implementing these strategies, you can safeguard your business from potential cash flow crises.

Examples of Alternative Financing:

1. Invoice Factoring: Selling your outstanding invoices to a third-party company at a discount in exchange for immediate cash.
2. Business Line of Credit: A revolving credit facility that allows you to borrow funds up to a predetermined limit when needed.
3. Merchant Cash Advance: Obtaining a lump sum payment in exchange for a percentage of future credit card sales.
4. Crowdfunding: Raising funds from a large number of individuals through online platforms.
5. Equipment Financing: Securing a loan or lease specifically for purchasing or leasing equipment.

Setting up a cash reserve, maintaining a comprehensive budget, and exploring alternative financing options will provide the financial stability needed to weather uncertain times and seize growth opportunities. Remember, maintaining a healthy cash flow is an ongoing effort that requires proactive management and regular monitoring. By continuously assessing your business’s financial position and implementing sound financial practices, you can ensure a strong and resilient cash flow that supports your business’s success.