Cash flow concerns can beset companies of any size and standing but they can be particularly painful and damaging if you’re a small business looking to make progress and reach a position of reliable sustainability.
Ideally, company bosses will be able to plan ahead well enough to avoid shortfalls but, in reality, there are situations in which cash flows simply dry up and leave a business facing a real financial squeeze.
Often in these scenarios, what’s crucial is that the individuals leading small businesses are aware of the financial options available to them. In many instances, there are more avenues worthy of consideration than is commonly perceived to be the case.
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With that in mind, here are cash flow solutions potentially available to small businesses struggling to maintain healthy levels of working capital.
When you’re a small business, it is not uncommon to be in the position of waiting for an extended period of time to receive amounts of money due as payment from client companies or organizations. Invoice factoring offers a means of raising cash quickly when the need arises.
The process essentially involves selling your invoices to third parties on the basis of pre-agreed terms. There are a growing variety of invoice factoring platforms and service providers helping to make the process more streamlined and funds easier to access.
Another option as a means of generating cash on short notice for small companies is asset refinancing. The process is based around a business effectively selling certain high value assets to third parties and then renting them back at a fixed cost.
This option can be particularly useful for a company that has a good deal of value tied up in just a few assets but which is also facing a real squeeze on its cash flows.
Clearly, a small company might be keen to retain ownership of some or all of its more essential assets but there is little to be gained from retaining that ownership if the business is otherwise unable to function and stay afloat.
There are an increasing variety of what are called ‘term loans’ being made available to small businesses and for cash flow crises they can be extremely helpful.
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These loans are generally designed to provide financial relief to small businesses in trouble and the terms typically only relate to short periods of time. The fees on these loans can be relatively high but, in a real cash flow emergency, they can nonetheless be well worth taking on.
Getting the Right Advice
From the perspective of small business directors and operators, there is nothing more crucial than keeping cash flowing and working capital alive. The good news is that there are more potential routes to short-term financial solutions available than many people realize. However, it is important only to take on these options on the basis of a full understanding of the terms involved and, ideally, with the support of expert advice on the key issues.
Author: John Baird is a personal finance and insolvency expert from Scotland Debt Solutions. He specializes in advising people on how to manage their money and deal with their personal debt problems.