Avoid Cash Flow Shortages During the Holidays

Everyone knows that a business needs money to survive. However, the turbulent economic times are making it difficult for many small businesses to maintain a steady cash flow. The common practices of tracking accounts receivable and accounts payable will not be enough to combat an actual cash flow crisis. However, there are some steps that will preserve relationships with creditors and help ensure the survival of the company.

February is a difficult month for small businesses. There is usually a rise in insolvencies as a result of cash flow shortages after the holidays. The holidays may be a busy month for small business owners, but they do little to reduce the risk of cash flow shortages. Fortunately, there are steps that will allow small business owners to avoid cash flow problems throughout the holiday season and into the New Year.

Holiday shutdowns and changes in payment schedules can make it difficult for small or emerging companies to keep a positive cash flow. The reasons are due to inconsistent inventory turnover as well as the additional costs of holiday pay and increased hours. The key to avoiding issues with cash glow is to address the problem early.

Strategies

Begin by creating a rolling forecast cash flow for at least 90 days. This will eliminate any surprises where cash flow is concerned. Before the holidays, attempt to find new ways of increasing the amount of cash on hand. For example, sell off excess assets that are not essential to the business in order to add a little more cash into the company accounts.

Have a backup plan prepared for poor cash flow during the holiday season. Try not to rely on a single customer, and attempt to draw in new people. This will help alleviate the loss of a customer. It is also important to invoice early and often. Do not let invoices pile up. Keeping up with invoices will provide the cash flow necessary to keep the business going. A company with too many invoices or a number of late invoices may benefit from a cash resources debtor finance facility. This type of organization provides 80 percent of the value of an invoice, but they pay within two days of the beginning the business relationship. Another option that small businesses have to keep them over the holidays is credit.

Obtaining Credit

The Small Business Administration reports that a majority of business owners use credit to establish their companies or keep them afloat. However, attaining useful lines of credit is not always easy given the current economic climate. There is business credit available, but it might require more resourcefulness on the part of applicants to attain.

Traditional banks are not always a good source for small business loans, but credit unions are becoming a much more accommodating source of revenue for small business owners. Banks have more cash at their disposal, but they are also more stringent in their policies and offer little advice to small businesses. Credit unions often employ people who specialize in dealing with small business loans, which makes the process much smoother.

Microloans are great for the company that only requires a few thousand dollars to invigorate cash flow. These loans are available through micro lenders, and they often have excellent rates because nonprofit institutions support them. Microloans are worth looking into, and they can be up to five figures. It is important to make sure that the company meets the necessary qualifications before beginning the process.

Another loan option is cashing in insurance policy loans. This should never be the first choice because the market value is never given for them. However, if it is the last option, taking an insurance policy loan below market value is better than keeping a negative cash flow and damaging the value of the small business.

Another Option

Paying cash for supplies and expenses is wonderful, but it disregards a fundamental rule of business, which is everything is really financed. The money is either lost with the potential income from the investment or it is given for the purpose of paying the interest for the money of another person. Retaining money in an investment can be rewarding for small business owners. It can also provide a way for small business owners with a hassle free way to boost cash flow.

A rare but often successful option for small business owners is to finance themselves. There are dividend-paying whole life insurance policies that are specifically created for business owners to use as a source of financing. This set up allows money to be removed easily and privately. The money will have to be paid back with interest, but the sum is returned to the policy. There are even policy options that allow small business owners to receive interest on the amount of money that they borrow. Another benefit from this option is the fact that the owner, not a bank or creditor, chooses the schedule for repayment.

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