Money Matters Affecting Small Business Growth

Small business owners struggle with money matters and most of their problems revolve around three issues;

1. Cash flow
2. Business Finances
3. Business Funding or Loans

This article will take you through the three facets in detail to help you manage money better.

In this Guide;

1. How to Weather your Cashflow Storms: As shared by Entrepreneurs
2. How a Startup can Stay on Top of Business Finances
3. 5 Small Business Funding Mistakes to Avoid
4. Merchant Cash Advances: An Affordable Way to Grow Your Small Company

Each section contains useful insights to get you better at managing money.

How to Weather your Cashflow Storms: As shared by Entrepreneurs

Staying afloat— in terms of cashflow—can be a problem if your business does not experience a continuous inflow of money.

Without a strategy, you can find your small company suffering between payments, and experiencing revenue gaps that can interfere with normal business ops.

Kabbage spoke to two entrepreneurs; Linda Jordon of Diamond Realty Investments (a real estate firm), and Jim Brady of Shaker Consulting (a small-business consultation service), in a bid to understand how they work to weather their cashflow storms.

Here’s what came out.

1. Change Your Approach to Keep Cash Flowing In.

Linda Jordon purchases, (sometimes) remodels, and sells homes, only to earn an ROI after completing a sale. But while awaiting a deal, she still has to pay office rent, business expenses and clear wages, among other costs that goes into a reno.

“This time varies, depending on how soonyou remodel, andhow fastinspection agents give a go-ahead,” says Jordon. “In cases whererenovation happen quickly, and a cash buyer shows up, it is possible to complete a sale in 30 to 45 days. However, longer remodeling days and months of customer search can mean months without profits.

So Jordon remedies these problems by changing her approach from time to time to keep the money coming to her. “The idea is to complete a sale every month to maintain a steady cashflow!”

She goes as far as skipping the remodeling stage to make a sale when she foresees cashflow problems.

Changing your approach in this manner, depending on your business model can help you weather your cashflow storms.

2. Tap into a line of Credit.

Jim Brady, takes a different approach to maintain cashflow at Shaker Consulting. His company assists small firmsto streamline their approach in selling products &services to government organizations.

“Some projects are large and long-term, whileothers are short, which makes cashflow unpredictable,” says Brady.

 So the entrepreneur uses a line of credit to cover business expenses when cash is limited and ops must go on.

“It is a flexible way to keep things going when cash is a problem— more like a “safety net” to me!”

You Can Use Cashflow to Manage Inventory Better 

Inventory management matters because; how much you have, storage costs, and how fast you’ll deliver it to clients can determine the state of your business. 

Inventory refers to the stock of products a business holds in a warehouse at a particular time with plans to make sales.

Based on your business, sometimes it can be beneficial to hold inventory longer, hoping to rake in more profits later—if the value of items increases.

But if you deal in highly perishable items or your clients expect timely delivery, then clearing your inventory is priority number one.

Regardless of where you fall, it helps to use cashflow to keep your inventory in check.Let’s say you run a business where inventory moves slowly, but a sale can mean a good ROI months later.

Still, you have to pay for storage, fund marketing campaigns, and manage payroll even when business is low, which is not possible if cash is not flowing in.

An excellent idea is to tap into alternative funding products that offer instant cash—like a line of credit. Solving your cashflow problems using a line of credit can help keep your inventory healthy.

The case is not any different, with a business that handles perishable items. Only, here there’s the need for speed because clients demand speedy shipping and delivery.  

Expedited shipping can be costly for a small growing business, but it is a wise decision if the return is worth the investment— and it’s the right move for your inventory.

So you’re better off with strategic borrowing than ending up with products you can’t sell anymore.

Lastly, partnering with the right lender or finance provider and maintaining a healthy relationship can increase your chances of getting finances when you need them. Always do a thorough search to meet a service provider that understands the unique needs of your business.

For most small and medium enterprises, proper inventory management goes in line with cashflow management. So no matter the inventory needs of your company, it is always important to keep a hale and hearty cash flow.

How a Startup can stay on Top of Business Finances.

Achieving success is every entrepreneur’s dream regardless of the niche they choose to fill. But it is not very easy to break even and see your idea turn into reasonable profits. The path to victory has many red flags to watch out for and express routes to take if you notice them in time.

And with the vast range of professional advice on personal finances out there, novices may find it tricky to figure out what’s best for their businesses. 

Here are a few wealth management guidelines to help you keep in check your professional and personal finances.

1. Be the first to earn.

Though it can be tempting to throw in everything you have into a startup, compensating yourself is essential for many reasons. First and most important, you need to keep business and private finances separate which can be difficult to do if you don’t pay yourself.

Second, your personal needs never go away regardless of how passionate you are about growing your business so you need cash to sort them. And third, for goodness sake; you deserve your cut of the cake!

2. Put aside something for expansion efforts. 

Always think growth, and put money into it! Finance growth initiatives after a thorough ROI analysis.

One way to ensure you growth efforts work is to allow your team to be innovative in satisfying ever-changing customer needs. Be willing to invest in tomorrow if it’s worth.

3. Streamline your billing. 

Overdue invoices can cause significant cashflow snags to a growing business. If you have lots of those then you need to change your billing approach. Research and learn what a small business can do when clients are reluctant to settle invoices.

4.  Pay taxes in bits.

A three-monthly or quarterly payment plan can make you forget about taxes. Shift to a monthly routine to stay on top of your business taxes.

5. Check your records. 

A dedicated entrepreneur must save time to review financial records on a daily, weekly, or monthly basis. This kind of monitoring and tracking ensures you always have an idea your financial status and know when to take corrective measures.

6. Always Compare Spending vs. ROI.

For every spending you do, try to determine the return on investment. Failure to do so can mean wasting finances on unimportant matters in an environment where money is a scarce resource.

7. Develop good money habits.

Be strict with finances. Avoid impulse and unplanned spending. Keep everything on record. Set things straight with your bank.

8. Borrow wisely.

Debts can ruin your credit score and take a toll on your business. Look at “small business loans and borrowing” as a sub-topic under financial money management. 

9. Plan your business finances. 

Lastly, you need to plan your finances. Plan for today, tomorrow and the future. Entrepreneurs who fail to plan their finances spend carelessly and may never get the chance to grow scalably.

For new business owners, managing money is a challenging task that takes time and practice to master. Failure toset your finances straight may lead to cashflow problems and threaten to hinder operations.

10. Keep Liquid Reserves and Prepare Accordingly. 

Businesses that survive long have the special intuition to “weather storms.”As you entity expands, try to store 6 to 12 months of your company expenses in accounts that can let you liquidate anytime you need your cash. Plus, it helps to secure the protections plans you need—like health insurance—early.

11. Diversify Excess Capital. 

Do not hold any excess money in your company. Diversifying your investment portfolio is important for your success. Holding back you excesses means those funds carry the same risks as that of your business. It is wise to pull out this capital and invest it in a niche with a different risk profile.

12. Work with Experts.

Small companies often sink and close up because their owners make critical decisions without conferring with experts.  Create a small network of useful contacts including that of an accountant, a lawyer, and a tax advisor.

13. Handle Personal Funds like Your Business Finances.

Care for your personal funds the same way you do for your business. That way you can see where to cut expenses and increase savings as well as investments in your retirement accounts for the good of your future. Careless handling of personal finances could affect your business.

14. Make the Most of All Tax Breaks.

Most small companies are now entitled to a 20% "pass-through" deduction thanks to the recent amendments in the U.S. tax code. Check with your tax expert to make sure your business (and you) are paying as little in tax as the law dictates. Also, be sure to consider retirement plans with tax advantages like self-employed 401(k)s and IRAs.

5 Small Business Funding Mistakes to Avoid.

Funding mistakes are the least noticed red flags among business owners. Some business owners do not see most of the pitfalls that come with business lending. Choosing the wrong product, lender, or borrowing for the wrong reasons may be a costly blunder.

Loans with strict terms might get you in financial dilemmas while sky-high interest rates can gobble up your profit margins and ruin your bottom line.

Financing mistakes are difficult to spot beforehand unless you have the warning signs at your fingertips. Here are six of the worst funding mistakes you could make when taking out bank and alternative small business loans.

1. Over-depending on Financing. 

Not being able to make money out of your small business can be intimidating. You need to be generating enough money to keep your company on its feet and make profits as well. Though funding may offer comfort during financial constraints, it is important to ensure your entity can stay afloat without relying on extra financing all the time.

The truth is, most financial providers will look into how much you generate organically when they offer you a loan— in a metric known as the debt-to-equity ratio. The metric determines how much you’ve invested and how much you make in revenue, in relation to your full debt amount.

2. Borrowing Beyond your capacity.

Huge amounts can be enticing to the business owner, especially when they’re just getting started and finances are fixed. But borrowing beyond your limits means putting your company at risk. You could entirely wipe out all your profits, or invite the worst; ruin your business and personal credit in the process.

The more money you take out, the more you pay back in interest. That is why you need to borrow judiciously regardless of the amount your lender is willing to offer. Concentrate on borrowing only what you need and pay the amount back in time to build your business credit history instead of targeting big loans.

3. Getting Late on Payments.

Failing to meet payment deadlines leads your business in a continuous debt cycle. Penalties and fees for a delayed payment can make it even harder to clear the next payment. In the worst scenario; it could ruin your credit score.

4. Taking out the Wrong Kinds of Loans.

Loans differ significantly. Short-term products vary widely from long-term loans, and tools like invoice financing are a different thing altogether. The type of business loan you take out can either make or break your company’s financials. Loans are primarily classified into:

• Short-Term Loans

• Long-Term Loans
• Alternative loans like MCAs etc.
• Small Business Association (SBA) Loans
• Equipment Loans
• Invoice Financing.

5. Not reviewing all available Options.

Sometimes your best option lies with an alternative lender and not a bank. Some municipalities organize small business grants to help entrepreneurs who qualify offset some of the startup costs. Make sure to review all other sources of money like angel investors, and, friends and family.

Merchant Cash Advances: An Affordable Way to Grow Your Small Company

The process of expanding a small business requires a strategy, action and finances. Without any of the items, you have an incomplete recipe that may not give the results you desire.

While many micro-businesses know precisely what they should do to grow their firms to the next level, they only lack the finances to put into practice their thoughts.  But a merchant cash advance can change the direction of your story.

It is a quick and undemanding avenue to source the extra cash your upcoming business needs to make improvements. 

Below, we explore the advantages of an MCA as well as the benefits of using this excellent alternative to your old bank loans. But first we explore the growth opportunities you can use your MCA for.

Business expansion projects

Here are some growth projects worth seeking extra funding for:

• Launching a new location or expanding an existing store
• Entering a partnership with other businesses
• Creating fresh marketing strategies
• Developing a customer-incentive program
• Updating obsolete equipment
• Introducing a new service or product

There’s an endless list of expansion projects, but regardless of the one you pursue, you must put in some finances.  But like many entrepreneurs, you may not have the liquid cash to see your company through the next phase.

The Bottom Line

Merchant cash Advances can hold the fort for you when it is time to put in some extra dollars in a project. Traditional banks may disappoint you; take too long to verify you or set standards you can’t meet. But MCAs will always prove handy for quick turn-around projects.

With MCAs, a small firm receives a lump sum from their cash advance provider which it pays back as a percentage of its day after day sales.

Characteristically, merchant cash advances are accessible without thorough credit profiling and application procedures. Reputable funding companies look past bank statements and credit to approve you for an MCA. Often, they evaluate a business’ daily credit card revenue and your expansion project then decide on a solution that works in your interest.

What’s more, the repayment structure saves you the stress of meeting due dates and minimum payment caps.