Going into this year for business, you need to focus on your cash on hand. Small business has been hit hard and will continue to be affected by the ongoing pandemic. The difference between mere small business survival and small business rebuilding comes down to your small business cash flow. The bad news is that enough cash is hard to come by through traditional small business financing routes. The good news is that alternative financing companies are still lending to small businesses looking to improve their cash flow.
How Much Cash on Hand Should You Have?
Larger small businesses up to 500 employees may have 27 of cash on hand, but some small businesses only have about 10 to 12 days of cash to cover operating expenses. So, this begs the question of how much cash you should aim to have on hand. There is no one size fit all answer, but if you are hit with an unforeseen expense or a drop in revenue you will most likely need more than 10 to 12 days of cash on hand. You can estimate how much cash on hand you should have by reviewing your cash flow forecast and budget and allowing yourself some wiggle room in the budget to account for any surprises 2021 might have for us.
Beyond the cautionary reason of improving cash flow in case of an emergency, cash flow is what will determine your business growth. Expanding your client base, product offering, or simply sale volume will require more upfront costs before you see that profit. Many small businesses reach a growth plateau that can be driven by lacking cash flow. Similarly, many growing businesses will see their growth stutter or even fall because they have overextended their cash flow and now have to turn down new business. So, cash flow really is the king of your small business, and having healthy cash flow will mean having a healthy and thriving business.
The first step you can take in improving your small business cash flow for the new year is simply to review your payment terms with your suppliers and customers. Some larger customers may have extended credit terms of up to 90 days. You probably don’t have that same ability with your suppliers. So accessing the capital owed to you will be a huge benefit to the financial health of your small business. One way to do this is by negotiating payment terms with your larger customers. If they could pay you faster, then your cash flow will reflect that.
Benefits of Bank Financing for Small Business Cash Flow
Another way to improve your cash flow is through a bank loan or line of credit. The benefits are less expensive rates to financing and more flexibility in running your business through additional access to capital. The drawbacks are that the qualifications for bank financing are high and you may not be approved for the full amount of financing you need. Banks are typically more hesitant to lend to small businesses due to the risk of your business failing. This means you are more likely to find bank financing through your existing banking institution.
Benefits of Invoice Financing for Rebuilding Small Business Cash Flow
At Eagle Business Credit, we provide better cash flow to small businesses regardless of credit score, time in business, or a decrease in revenue due to the pandemic. Our services include invoice factoring which is a cash flow tool to improve your small business cash flow and allow your business immediate access to the money owed to you by your customers. It is a truly simple and straightforward financing method that advances funds based on your open invoices. Your customers can still pay after your agreed upon credit terms expire, but your cash flow will not suffer due to those long payment terms. You would have already been advanced the payment for your goods or services, so you can continue to make more sales and larger sales.
Rebuilding Your 2021 Small Business Cash Flow
Regardless of which method you choose to improve your small business cash flow, it’s important to build your cash reserve in case of an emergency. A great thing about invoice factoring services is that your credit limit grows alongside the growth of your sales. The more you grow, the more funding you have. So, that cash reserve will be easier to build without having to take out more loans or expenses associated with small business financing. You can have another financing method and use invoice factoring purely as a cash flow tool. It is a flexible product. Just keep your cash flow top of mind as a small business priority and you will have the opportunity to grow in 2021.