Small business owners face several challenges, with perhaps the largest being a lack of cash flow and available options to fund growth. Even with a great product or service, most small businesses either succeed or fail as a result of their cash flow management. So how do you grow your company without a pile of cash sitting in the bank? Fortunately, you have several options. Some are risky. Some take a little investment. Some are a little harder to come by. Below, we’ve listed the 6 top options for funding small business growth:
- Take on a new partner or consider outside investors. If your business model is sound, you can likely attract investors or someone with some financial means to come on board. This tactic can take some time and requires patience, so if you need cash quickly this may not be an option. You will also lose some control over business matters, so keep that in mind as you weigh your options.
- Leverage credit cards. If you have a short term or immediate need and the amount of money you need is rather small, credit cards can be a viable option. But be careful! Interest rates are often high and if you get in over your head you can likely not only damage your business credit rating, but your personal credit rating as well.
- Get a bank loan. Banks are lending and if you (yes you personally) and your business qualify, this can be a good route to take. The requirements can be hard to meet though, and depending on how long your business has been operating and the revenues you realize, you may be required to put up personal collateral.
- Offer quick pay discounts to clients. Some of your clients likely have invoice payment terms that are difficult to deal with; 30, 60 and even 90 days are not uncommon in certain industries. While there is an effective way to deal with this issue (more on that in a moment), one way to help clients pay faster is by offering them a discount for quicker payment. 1% net 10 is an example of offering clients a 1 percent discount on the invoice for payment within 10 days. The problem here is that your clients may not see any value in a 1 percent discount. In fact, they may see more value in the float (interest) they’ll realize if they hold onto their money for another possibly 80 days. The other possible issue with this option is that the option is theirs, so if you need the money, taking this gamble may not be the best way to go.
- Slow pay suppliers or employees. Please note… these are not good ideas but they do free cash for an immediate need. If you’re going to slow pay anyone, slow pay your suppliers and not your employees. And be sure to contact them and let them know that you’re doing it. Really… let them know that you’ll be paying them late and give them a date when they’ll be paid. They may not be happy, but they’ll be glad you reached out and they likely won’t inflict any sort of penalty; like not delivering supplies.
- Factor your invoices or receivables. In point number four above, we mentioned offering discounts to clients for faster payment, though there was no guarantee. With invoice factoring, you essentially do the same thing only with a third party or factoring company. Rather than wait for payment from your clients, who may take 30, 60 or even 90 days to pay, a factoring company buys your invoices from you for a nominal fee and gets you paid within 24 hours. The factoring company then forwards those invoices to your customer and professionally handles the collections. What’s nice about this option is once you’re set up as a customer, it becomes a reliable source of fast cash.
If you’re a small business owner, you are undoubtedly familiar with the sayings ‘it takes money to make money’ and ‘timing is everything.’ These sayings are definitely true and they are somewhat intertwined. When you have access to cash flow is equally as important as having it to begin with and is often the foundation of a successful company, besides a great idea of course.
About the Author
eCapital helps B2B companies nationwide access their working capital and accelerate their cash flow through invoice factoring. With a passion for helping small business owners run a better company, eCapital’s online community shares small business resources, provides trends, and delivers practical business tips. Learn more at eCapital.com.