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When you own a business, sometimes it’s difficult to always have the working capital you need to keep up with all the expenses and surprises that can happen daily. If you ever find yourself caught in a situation where you don’t have the necessary working capital to help your business run, you will need to consider various kinds of working capital financing. It can be useful to know your options before you need the financing.

Financing Against Your Assets

If your business needs to cover expenses like payroll and has some valuable assets it can borrow against, you might want to consider assets-based financing. This kind of financing allows you to borrow against any vehicles, machinery, or even accounts receivable your company may have. That means if there are any companies or individuals that owe your business money, you can sell that account to a financial institution to turn it into working capital for your business.

Trade Credit with Your Suppliers

If you need working capital financing for your inventory, there is always the option of trade credit with any of your suppliers. This way, you will get the inventory you need and pay for them later. Most suppliers will be open to this kind of credit because it sets up a lasting business relationship between the two of you.

Opening Up a Line of Credit

You may have noticed that it has been difficult for you to secure enough working capital for recurring expenses that you have had at regular intervals. In this case, you might want to consider a line of credit with a bank. In this case, a borrower can receive an amount of the money as needed, but they are not required to take the loan. This would be an ideal option for recurring expenses.

Use Inventory for Financing

In the event that you have plenty of inventory but need some working capital financing, you should consider inventory financing. This kind of loan would enable you to borrow against any inventory you have for the additional funds. The main concern with this kind of borrowing is that the lender has the right to the inventory until the loan has been repaid. Only utilize this option if you know you will not need to sell this inventory immediately.  With all the options that are available to you and your business, there is sure to be a way that works best for your business’s needs.

For small business owners, one challenge that is often not treated with the correct amount of gravity from the very beginning is small business finance management. Hopeful and excited, too many entrepreneurs and proprietors start out on a shoestring that they finance through their personal savings. In order to avoid pitfalls that eventually sink numerous community endeavors every year, it is important that you establish good habits from the beginning.

The very first thing you will want to do is open dedicated accounts for your business. Operating a business with funds pulled directly from your personal accounts can be very dangerous. Furthermore, you miss the chance to establish exceptional credit for the business as long you keep your personal accounts tied up in your business affairs. Maintaining bank accounts associated with your business’s name will help to demonstrate credit-worthy status. Essentially, your bank accounts will resemble an achievable credit line for financiers.

Within your business there will be opportunities to extend credit to consumers as well. As a product or service provider, you represent a link on a chain. If small business finance management is not handled in such a way that your customers pay in a timely and efficient manner, it is likely that your bills to creditors will be late or unpaid as well. Establishing a clear and consistent policy from the very beginning will ensure that there is no confusion. When confusion arises or bills go unpaid, debt collection becomes necessary, too. If debt collection is overwhelming, you may hire contractors to handle it for you.

Today’s payment options are diverse. While many people still prefer cash, the potential for electronic payments evolves daily. In order to attract the most customers and ensure the quickest payments, it is a good idea to explore a wide range of payment options. Whatever spends, so long as it is backed by reputable methods, should be added to your payment possibilities.

The notion of small business finance can be mind boggling for some, but following a few key rules and establishing good habits go a long way toward keeping everything simple. In the long run, you will be very glad that you put all your business issues in good order from the very beginning. With a dedicated account, clear payment schedule, consistent collection and a variety of payment options, you will come to be known as a person with a head for business.

Everyone makes mistakes, including small business owners. One way to succeed is to know what mistakes are most common and to avoid making them. Four of the most costly mistakes are made in the areas of finance and include undercapitalization, overinvesting, confusing revenue with profit, and inadequate accounting.

Undercapitalization

Undercapitalizing refers to not having enough capital to operate efficiently. This is a common business problem resulting from lack of cash flow or the inability to secure financing. New ventures often fall prey to this because they fail to adequately research start-up costs. Two good ways to avoid undercapitalizing are to have an in-depth business plan that is consistently followed and to have an accountability partner, a sort of coach, to help keep the enterprise on track.

Overinvesting

Another concern is overinvesting. This generally occurs in the area of fixed assets. Fixed assets can include store fronts, equipment, furniture, computers, and inventory, which is the most common area of overinvestment. Having sufficient product is a vital component of success, however, having too much stock can result in financial loss. A slow sales period could make the cost of maintaining a large inventory higher than potential profits, meaning the business might have to seek outside financing. To avoid this blunder, it is essential to conduct adequate market research.

Revenue vs. Profit

Many small business operators consider revenue and profit to be the same things, but this is a mistake. Revenue refers to the amount of money generated by sales, while profit is the money earned by the company after subtracting the cost of doing business. A simplified example of the difference would be that a pizza place’s revenue is the amount of money it makes from selling whole pizzas; however, profit is the money it makes after subtracting the cost of the ingredients it took to make the pizza from the revenue earned from selling it.

Inadequate Accounting

A final financial mistake of small businesses is inadequate accounting. Failure to adhere to standard accounting practices can be the death of a company. In the beginning stages of operation, entrepreneurs often commit the error of trying to handle accounts payable, accounts receivable, and budgeting on their own. While most people are able to effectively manage personal finances, corporate finances are very different and require a specialized set of skills. Businesses have many types of income and expenses that are subject to various tax and income laws; therefore, it is essential for all owners to have a qualified accountant, bookkeeper, or specialist in accounts payable/receivable on staff or on retainer.

The good news is, all of these mistakes can be avoided with adequate research, a strong business plan, and the help of a financial advisor or a qualified accountant.

If you own a business that offers products to your customers before you get paid, it can be difficult to pay for necessary expenses, like paying employees, while you wait for your customers to pay the invoices. This is why many businesses turn to factoring to make ends meet.

This method is a way for businesses to solve their cash-flow problem, because it allows them to turn their unpaid invoices into cash in a matter of days instead of months. It is selling your unpaid invoices to a different company, who then takes a fee out and advances a percentage of the remaining balance to you within a matter of days. Once the customer pays the invoice, the company gives you the rest of the money owed to you.

Factoring may be a better option for some companies because they won’t have to apply for loans from banks. These bank loans require collateral that new businesses may not have, and they also require a good personal credit, so you may not meet the requirements. Some businesses also shy away from loans because they will have to pay the loan back with interest later. The final reason not to use a bank loan is that the loan may not close in time for you to get the money you need. If you have to pay your employees in a week, you can’t afford to wait a month or more to receive your loan from the bank.

Another reason for businesses to use factoring is because it allows them to spend more time focusing on their business. Instead of tracking down slow-paying customers and putting your business on hold while you hound them for the money you need to continue operating, you sell that responsibility to a different company so that you can continue businesses as usual with the money the company has given you for the invoice. This can be important if you have plans for expansion and would like to get started as it as soon as possible.

Although this method of getting money isn’t for everyone, it can work in a pinch and is a good option for many people, especially a start-up business. It can give businesses owners a peace of mind and let them know that they can make ends meet if they get a customer that waits until last minute to pay their invoices. That way, the company can continue functioning while someone else waits for that slow customer.


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