There are five main paths to raising capital:
A dearth of working capital is a problem for companies of any size, but it can be especially detrimental for smaller entities with fewer resources.
If you’re running your business just hoping that there will be enough in the bank to pay the bills at the end of the month, it won’t take long to wind up with more debt and financial responsibilities than you can handle.
Our advice: Develop and stick to a budget. Doing so will not only help you plan for the future, it will give you a tool for analyzing expenditures and the ability to change direction quickly when needed.
Entrepreneurs are rightfully proud of “bootstrapping” their way to success, so it’s not unusual for business owners to take on debt to launch their businesses. But there absolutely is such a thing as too much business debt. Maybe they ran up a little too much money on a personal credit card, or perhaps their local banker extended a line of credit that’s now used up and commanding a high interest rate.
Whichever debt vehicle was tapped into, these situations can have significant short- and long-term impacts on the company. For example, it can take time for a firm’s positive cash flow to start, and in the meantime, there are employees, suppliers and overhead to pay.
Unforeseen expenses can derail any small business’ best-laid plans. Having a dedicated account in which you build up a rainy day fund will give your business a cash reserve that can get you through tough times—or help you grow when the time is right.
Here’s how it works: When times are good, put what you can into the account and let it grow over time. You can also set up automatic transfers from your business checking account to its savings account so that you don’t need to do it manually; the money will be accessible if you need to pull some back.
For companies that extend credit terms to customers, top ways to improve cash flow include establishing clear payment terms, invoicing effectively, offering discounts for early payment and making it easy for customers to pay you.