Small Business Cash flow is the lifeblood of any business, regardless of its size. Entrepreneurs often focus on the revenue side of the operation because, after all, making sales and generating income is why businesses open in the first place.
But revenue generation is only half of the cash flow equation. Containing costs is a challenge for every company. If you start out with bad habits at the beginning, your business will suffer as it grows. And if you ever want to expand your company and want to secure small business financing, you will have to provide your financials as part of your loan application package.
Look at your financial statements. If your expenses are greater than your income, you have a small business cash flow problem. Be sure to examine your fixed and marginal costs when trying to improve your situation. Naturally, you want to staff appropriately for peak periods by adding staff and down times by cutting back hours or the number of employees you have.
While there is little you can do about the electricity and the water bill, there is plenty of opportunity to shop around for better deals on phone lines and internet service, IT consultants, and outside vendors.
Many entrepreneurs open their companies because they want to pursue their passion. Dealing with finances is something that is foreign and intimidating to them. Even in the early stages of the business, farm out the accounting function. Leave the money-tracking to a professional who specializes in helping small businesses. Tracking expenses can be frustrating and time-consuming. That’s what accountants are in business to do.
Identify problem areas in your small business cash flow. For example, if a restaurateur is not diligent about his ordering system, he could wind up with excess perishable food that goes to waste. Even if the wastage is small, it adds up over time. If you find yourself tossing cases of over-ripe bananas each week, something is wrong.
Phone and internet providers are constantly making offers to entice consumers and business customers to switch services. Pit the players against each other and negotiate better deals. Make inquiries with vendors that are hungry for business. These can include inventory suppliers and providers of professional services, such as attorneys, accountants, IT consultants, web hosting companies, public relations firms and advertising agencies.
Don’t bite off more than you can chew at one time. Make goals that are realistic and measurable. For instance, you can target reducing some expenses by a modest amount. On the revenue side, set a goal of increasing sales by five or ten percent under a certain timeframe.
Plan for the Future
Once you have gotten your current financial situation in order, then you will be ready to apply for expansion funding. Big banks are approving business loans at a post-recession record 25.3 percent. That means one-in-four loan applications are being approved. Regional and community banks, which often are willing and able to offer SBA loans that come at attractive interest rates, are approving nearly half (49.1 percent) of the funding requests they receive, according to the latest Biz2Credit Small Business Lending Index (January 2018 figures).
An important step in planning for the future is to write a business plan that outlines the goals and objectives for the next few years and how the company plans to achieve them. Elements include:
- Executive Summary (one-page explanation of the company’s business goals, operations, marketing efforts and revenue model)
- Business Description
- Local Market Competitive Landscape
- Description of Product or Service
- Sales, Marketing and Promotion Plans
- Executive Team
- Financial Information (revenue projections, balance sheet and P&L statements)
- Owner Investment
- Other information
Having a well-written business plan greatly enhances the odds of successfully securing small business financing. Additionally, the road map that the business plan lays out will help in the operation of the firm in the near and long-term future.
If you don’t have the skill set or the time to write a plan yourself, there are several different business plan software packages on the market that can guide you through the process. Alternatively, you could hire a professional business plan writer who can get the job done in less than a week. The service usually includes developing a strategy that will impress potential small business lenders, including banks and non-bank lenders.
Included in the fee, some of these professionals will even print copies of the plan for you and provide a CD with an electronic version of the plan if you are submitting an online application for small business funding. Since more and more lending institutions are now accepting digital submissions of applications for small business loans, this offering is quite valuable.
But first thing is first – work to contain the costs of your business now before looking for the capital to expand your operation.