Last Updated on April 2, 2023
Every entrepreneur learns new things every day. You may be the most planned CEO in the history of CEOs. Still, one of the biggest lessons you learn over time is that no amount of preparedness can factor in the derailing of your business because of unplanned events, pandemics or change in ecosystems.
Operating any business requires you to dedicate time, patience, and critical thinking ability. One of the most common reasons for a business to go under is cash flow. Cash flow problems have over a set time period pushed thousands of businesses out of business, but sometimes all it takes to get a business back on its feet is a little accounting expertise and a ‘lending’ hand.
Building a solid accounting plan into your budget from the beginning is ideally the way to go, but better late than never, right? Below are a few mitigation steps you can take to get your business back on its feet:
Get Your Cash Flow In Order
Identify expenses and support functions where you can instantly cut non-essential costs that do not add up to your acquisition costs. These avenues can range from different organisational functions, technologies, contractual employees and travel or reimbursement benefits.
Evaluate Your Assets And Their Use Case
Being an asset-rich company does give you a sense of security and superiority, but sometimes this is what can be your downfall as well. Working capital is the most important thing for any successful business.
Take stock of all your assets and see where you can course correct, from freeing up office space and equipment by hiring freelance workforce, to letting go of office cars and technologies. Do everything that can be done to give your company a chance to survive.
Consolidate Your Payments And Loans
Triage your payments. Assign priority – from utilities to customer acquisition costs. You can also opt for interest free loans for keeping your business afloat and assigning the order of priority to outstanding payments. The added bonus here could be that you could reduce your repayments and keep a clear tab on your expenses.
Renegotiate With Your Vendors
While most third-party partners work on pre-negotiated terms, a good working relationship with your vendors can help you with some quick fixes like increased credit lines, more instalments and better commission rates.
Revisit Your Business Plan
Do you need to reallocate resources, or try a different approach? Has consumer behaviour shifted since you last evaluated your business plan? Do you need to be digital-first?
Try to point out exactly where you went wrong. Sometimes the loophole is not in the cash flow but the process, and it is important to fix that in due time if your company needs to course correct.
Try These Loan Options
While these were some steps to stabilise your business, below are some loan options that you can explore for introducing working capital into the business.
Before we start with your options of loans, remember to weigh the pros and cons of each loan and how it would affect your business in the long run. Understand your business requirements and the qualification of each of the following loan to zero in on your options:
Similar to a business term loans, these short term loans generally have a quick-term around time, and you can get approvals in within 48 hours. Though they have higher fees and interest rates, they can have a repayment structure ranging from 12 to 18 months.
Short-Term Lines Of Credit:
Though more flexible than short-term loans, they work on a similar model as any line of credit with shorter repayment timelines. These loans can be helpful as you only pay interest on the amount of loan you have withdrawn, regardless of your credit limit.
Business Credit Card:
To have business credit cards explained, you need to understand that they are as good as short-term loans. They can be used as cash wherever needed. Sole proprietors do not need a lot of documentation, and SMEs can use their accounting statements for a credit card application.
Your credit limits will be defined basis your credit score, your company projections, and your company performance. You can also explore the option of 0% APR.
Merchant Cash Advances (MCA):
You can loan a lump sum capital via MCAs for a percentage of your daily sales. The fees for MCAs are as high as 300%. They are a viable option for an immediate quick fix and getting your working capital running.
However, you should look at absolving yourself of all your debt ASAP to not pay very high fees. Use this as your desperate last resort.
Invoice financing companies advance a part of your outstanding invoices in order to alleviate you from your cash flow emergency. They hold your funds in reserves and release them upon customer payment, less their fee.
It works in a similar model as any conventional line of credit, where you can borrow up to 80% of eligible income. The approval processes are not tedious and can be done quickly to get the business back on track.
Cash Flow Or Working Capital Loan:
This is a form of short-term funding that primarily alleviates financial stress during lean business time. The best part of cash flow loans is that they can be obtained relatively easily. There are lots of creditor companies out there, and repayment models are structured with the industry in mind.
These fundings are also easier to qualify for since the creditors focus more on business performance than on your credit score.
Having cash flow issues and emergencies should not have to be stressful. To help safeguard against uncertainty in the success of your business, you need to understand the ecosystem and your finances like the back of your hand!
You can explore options where you can get working capital for the company, fast. Being aware is step one. Do research, speak with experts, weigh your options and then finalise on what kind of credit you can take in order to keep your company afloat and not tip your balance sheet off by much in the long run.