how-to-jump-cashflow-gaps-using-business-financing

How do small business owners overcome cash flow gaps using business financing

Many factors lead to your business not being profitable for a month. A typical small business owner will consider themselves “non-profitable” or be operating “in the red” when the monthly expenses to run their business exceeds the amount of revenue generated for that month.

There are many situations that can leave you with a gap in your cash flow. Let’s say you are in an industry where your customers do not pay you on delivery. If you are collecting money on a monthly basis, you will likely encounter a common problem: how do I pay my bills if my customer fails to pay on time?

If you’re looking for a quick solution to fill this cash flow void, then applying for same-day small business financing could be an option. By receiving a small injection of cash, you avoiding disrupting everything else in your business while getting over a financial hump. If you like being proactive and educating yourself for the future, then read on.

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Stop guessing your financial situation

Normally, most Canadian small business owners have a rough estimate of the impact of such missed payment. But sometimes these estimates can be off, resulting in bounced payments for all of the other obligations you have for that month. These bounced payments are a hit to your business credit score and personal integrity. A miscalculation as small as $10 will cost you in penalties such as interest rates, NSF fees, and credit score hits.

So what can you do to be proactive in these situations and keep your business going even if you won’t make sufficient profit for the month? The first step would be staying on top of your business finances.

Keep track of all costs of doing business

Keep track of your monthly business expenses. You can do this yourself and risk missing certain costs, or you can get an accountant to do this for you. Don’t know anything about financing? Download our quick guide to business finance for Canadian small business owners for free.

Having absolute knowledge of your financial standings dramatically reduces the negative impacts of unforeseen situations. It also lets you know precisely how shortchanged you will be. When you have an exact number that you want to fill, you can start taking proactive measures towards a target.

Monitor your cash flow and financial ratios

Benefits of monitoring cash flow

Accounting is in charge of keeping track of your cash flow. Accountants use cash flow statements to track and manage your cash flow. Having a cash flow statement is required to calculate your business’s financial ratios. There are many financial ratios, but to answer the cash flow void question, look at Operating Cash Flow Ratio. This ratio determines your current liabilities that you are obligated to pay.

Benefits of financial ratios

Financial ratios are what accounting and financing experts consider to be the Key Performance Indicators or KPIs of your business health. Financial ratios are taken from your financial statements – if you don’t know what financial statements are then reading this beginners guide to understanding small business finance can be the single most useful thing you can do. Collectively, financial statements are one of the most reliable tools in a small business owner’s toolbelt.

Considering your business financing options

Cash flow ratios are significant as a firm must be able to support obligations based on funds generated by the businessInvestopedia

To proceed further, you must first know exactly how much financing you are looking to obtain. Start by tracking your finances using a cash flow statement, followed by calculating your Operating Cash Flow Ratio. By completing these tasks, you get an absolute amount that fills your cash flow void.

Next step is considering your options to pay for your liabilities or debts. Yes, more sales can fill this void in the long-term, but what happens in the short-term – when the cash amount due is high and you are strapped for time?

If a firm is unable to this [generate sufficient funds], then it will need to finance itself through debt or asset sales.Birmingham Business Journal

Your two options are:

  1. Asset Sales: Given the conditions of a large volume of cash needed and low amount of time, selling off assets in time to meet the financial obligations are a long shot. Plus, selling your assets is counterproductive since you need your assets to generate revenue.
  2. Debt (borrowing money): Your second option, receiving same-day business financing is a better and more reasonable option. It fulfills your immediate financing needs without disrupting day-to-day operations that come with asset sales.

 

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