Businesses, big or small, are the lifeblood of any country’s economy. As an indispensable factor in the survival of every country, businesses dictate all the kinds of changes imaginable – economically and socially. These economic processes require movement of money. But to actively participate in financial exchanges, businesses need to keep their finances in order. As the saying goes, “In business, sales are vanity, profits are sanity, but cash is reality.”
Despite this knowledge, the reality of cash in businesses is not always as bright and dream-like as most people believe. A report from the National Small Business Association (NSBA) claimed that of the small businesses responsible for 39% of the jobs generated in 2014, 27% had actually admitted to being unable to receive the funding they needed.
This sad reality which mars the smooth flow of life in a country’s economy is what Summit Financial hopes to bring a solution to. If you are a business owner at this stage of your entrepreneurial journey or if you feel that your business will soon need additional financing, these tips are for you.
1. Work out financial needs ahead of time.
Knowing the company’s needs early on will help avoid complications later on. As a business owner, you most likely started the company with thoughts of selling your product or services and doing things that you are passionate about. Knowing the business needs will allow you to anticipate and gather resources necessary to cover the expenditures for sales, production, and marketing. This will also help avoid joining the 82% of companies that failed because of poor financial management and low understanding of one’s cash flow as reported by Jessie Hagen of the U.S. Bank.
2. Talk to your financial partners.
Planning your finances requires a thorough discussion to find out how much money will be needed to grow your business. Even when the cash seems plentiful, statistics prove that there are many unpredictable factors that can affect your business. In a study conducted by the U.S. bank, 77% of the small businesses that went down the drain claimed that inappropriate pricing of necessary materials had contributed to their downfall. Meanwhile, 73% admitted that being overly enthusiastic about achievable sales had been their downfall.
Avoiding unnecessary stress in the company’s cash outflow is possible with the help of creative financing solutions and resources offered by financial partners. Talking to your financial partners or bank will help propel growth. Doing this will prepare you to ramp up the business in the face of unexpected cash flow squeeze and imbalance in accounts payable and revenue.
3. Revamp your cash productivity.
If you are a business owner, you most likely pay attention to your company and employees’ productivity. If you are interested in growing your business, however, you may want to focus on the productivity of your cash before anything else.
Knowing where the company stands when it comes to the productivity of cash will allow for clear understanding of the company’s state. By doing so, it would be easier to plan creative terms like working capital financing to expand the company’s cash flow.
As the company grows, regular sources of cash like the company’s working capital or credit line may not always match the company’s short-term and recurring expenses. But with sound financial planning, expanding a business and taking growth projects will never be a risky or a painful process for any entrepreneur.