How Your Business Can Survive Cash Flow Issues
Cash flow issues are all too common for small businesses. While seasonal companies may have particular difficulties during certain months, all businesses experience some degree of revenue swings. This variance is a major reason that most small companies fail within five years. They simply do not have the consistent profits necessary to keep the business running.
In fact, businesses in some industries have life expectancies of fewer than five years. Retail stores, for instance, last an average of four years, and the average restaurant has to close within 3.7 years.
To ensure that your company does not meet the same fate, you must find ways to stay afloat when the revenue is low. Here are some ways to access needed capital during your business’ slow months.
Business Credit Cards
You probably use a personal credit card when you are a bit short on cash. You can similarly sign up for business credit cards that let you pay for your purchases later. These cards are great for equipment upgrades, and you could even earn rewards points or miles.
As with traditional credit cards, business credit cards do require you to pay fees and interest. You should thus do plenty of research before signing up for one of these cards. You may also want to avoid business credit cards if you have an overspending habit.
Short-Term Loans
Short-term loans should provide the extra cash flow you need when revenue is low. You can also use these loans to finance growth opportunities or cover unexpected expenses. You typically have to pay short-term loans back on a daily or weekly basis, and the interest rates can be quite high.
Cash Advances
Use cash advances when you need a quick influx of funds. While they do not have a fixed term, they do have high annual percentage rates, making them more expensive than traditional loans are. Be sure to clarify exactly what the lender’s interest rate is before you sign up for an advance.
Lines of Credit
A line of credit is another type of loan. Instead of borrowing a large sum of money, you just withdraw the funds you need from a set amount. As with other kinds of loans, you can use lines of credit to either salvage or grow your business.
The best way to handle potential cash flow problems is to be proactive. Consider finding alternative sources of financing even when you have plenty of profits. This way, if your revenue takes a downturn, you will have money available to keep your business open.
