Many see entrepreneurship as this wonderful exit strategy to escape the dread of the 9-to-5. They think the daily activities are doing what you love and getting paid to do it.
What they fail to see are the financial hardships around every corner.
The stress that comes with teetering on that ledge of financial instability.
One Slip-up from Disaster
You’re often one mistake away from a financial crisis when operating a small business.
Sometimes it’s on you:
· Lack of due diligence with contracts
· Failing to acquire the right talent
· Sourcing from the wrong manufacturers
Other times it’s out of your control:
· Natural disasters
· PR smear campaigns
· Unexpected buyouts
It’s easy to say “have an emergency fund” or “cut overhead costs” when you’re looking at it on paper, but behind the business are human beings. Mistakes happen. Life often takes unexpected turns.
What’s the Problem?
The financial woes of a small business often stem from stagnant sales.
The business starts off strong because there’s an influx of capital because the business is new and exciting. Friends and family members often attribute to the revenue. There’s a general hype.
Interest begins to wain and competition creeps in.
Before long, the business is merely breaking even because they don’t have enough to run necessary ad and marketing campaigns. It’s a slow spiral toward the inevitable “closing up shop.”
Fixing the Finances
There are a couple of ways to go about securing financing for the small business when you’re already strapped on capital, maxed those personal credit cards, and tapped into family help.
Factoring is when you sell an account to a third-party, so you can get paid quickly versus waiting the usual 30/60/90 day periods. You sell these contracts at a discount but it’s often enough to keep the business afloat through an important season (like the holidays which always injects good revenue).
TBS Factoring is quite common in the shipping industry which helps logistics professionals get paid in a timely manner when they’re on the road. BlueVine is another such example of B2B factoring that works with companies willing to sell contracts.
Cash Flow Loans
Cash flow loans are an alternative to bank loans because they’re flexible. They typically do not have the tough requirements found when working with a bank such as high credit scores and business age.
A few of the popular cash flow services include:
These services allow business owners to borrow anywhere from a few thousand dollars to hundreds of thousands of dollars depending if they meet their requirements.
Business Line of Credit
A business line of credit is much like the one you’d take out with a credit card company but, in this case, you’re doing it as your business. Meaning, you have greater access to capital based on a few criteria such as business age and revenue.
These credit lines go a bit higher than the cash flow loans.
You can expect:
· $10k – $1mil loan amounts
· 6mo – 5yr terms
· 7-25% interest
Sometimes you’ll need to product collateral but it’s a risk worth taking for the longevity of your business – and if you’re playing it smart.
Okay, so the whole “cutting overhead costs” thing shouldn’t be completely dismissed.
It’s always good to go lean with your business plans and operation.
Much of this is accomplished by shifting services online or reducing redundancy through team management and project management apps. Streamline the operations through free or inexpensive SaaS and plenty of expenses are cut as a result.
The finances fall right in with it – the services (mentioned) removes the middleman leaving you with better options during these financially unstable times.
How Would You Handle It?
What would you do (or have done) if facing a major setback with your business finances? Share your opinion or suggestion with a comment below.