29 Nov Why Steady Cash Flow is Crucial to Businesses
Cash is like oxygen for any business, which is why maintaining free cash flow is among the top priorities for any business owner. But with seasonal volatility, unforeseen emergencies and general uncertainty, this is easier said than done. This is one of the main reasons why steady cash flow is crucial to businesses.
Why free cash flow matters
Maintaining predictable, cash flow from month-to-month is more than a convenience for your accountant. According to the U.S. Small Business Administration, a lack of cash reserves is the No. 1 reason for business failure in the U.S. It’s not rocket science to understand why running out of money is lethal to a business, but when cash flow is volatile, it can happen seemingly out of nowhere. Once those reserves run dry, owners are left with few options to pay employees and bills and usually must resort to selling off company assets. Running out of funding is why steady cash flow is crucial to businesses.
How to manage cash flow
To keep cash flow as predictable as possible, the first step is to be completely sure of your company’s finances at every moment. Small-business owners probably expend plenty of time and effort already keeping track of the cash coming into and moving out of the company, so this should come naturally.
As the saying goes, however, even the best laid plans can still fall apart. That’s where having access to working capital becomes an important, proactive step. Short-term loans for small businesses serve as a backup in case of budget overruns or an unexpected payment coming due immediately. The right financing program will give business owners breathing room to handle cash shortages that could otherwise wreck the organization.
For those that are in seasonal businesses like construction and some areas of retail sales need to prepare additional fail-safes to protect against cash flow shortfalls outside of the busy season. Beyond budgeting and securing a short-term loan, small-business owners in these industries might consider negotiating with suppliers and vendors to whom they owe payment. Trade credit is one option, in which a business asks for an advance on goods or services in exchange for a promise to pay early. This can work the other way, too – a seasonal business can time invoice collection to coincide with the time of year when cash is needed most.
Owning and operating a small business is full of ups and downs, chief among them the concern that your cash flow will fluctuate as well. Talk to QuickBridge to learn more about how short-term financing can soften the blow of an unexpected shortfall and put your business back on track.