Cashflow is the total amount of money being transferred into and out of your business, especially as effecting liquidity. It is especially important to be sure you have enough coming in to cover what has to go out at any given time. When that flow of money is out of balance, you have a cashflow problem.
There are many ways cashflow problems can sideline your most potentially profitable endeavors. For example, an attorney may have win a case that will make him and his client enough money to retire. But litigating the case may cost him more money than he has, or that his retainer will cover. If he does not have the cashflow to litigate the case, then he will be forced to decline the work.
Likewise, contractors who want to build up a potentially lucrative subdivision will need enough cashflow to sustain them through the purchase, build-out, and sale of the property. Many building projects remain half finished due to insufficient cashflow.
The bottom line is this: Whatever business you are in, cashflow has always been a concern. Here are a few tips you can try for managing your cashflow better:
Factoring
Business requires you to make a lot of tough decisions and take some huge risks when it comes to how you manage your cash on hand. For small freight companies, this risk is a matter of course. As TBS, a company for freight factoring, put it:
If a load is not paid because of a credit problem then TBS takes the loss. Credit protection is very important because every month brokers and shippers go out of business still owing money to motor carriers. This typically works well for companies with 1-5 trucks that haul for numerous customers and for carriers with a low credit score.
There are many kinds of factoring that have nothing to do with freight. It is a financing arrangement where you sell your accounts receivable to a financing company for a lump sum payment. Of course, this is just one type of factoring. Before you use this as a cashflow solution, be sure to familiarize yourself with the most important types of factoring available to you, especially if you do business overseas. If your business carries a lot of cashflow risk, there is a good chance you will find a factoring option to help manage it with less risk.
Renting and Leasing
The biggest difference between owning and renting is that one is a long-term commitment and the other is not. When you business is just starting out, it is easy to fall for idealism in the form of overestimating your chances of survival. When this happens, you might be inclined to make the kinds of financial decisions that well-established companies make when it comes to purchases.
But saddling yourself with a multiyear contract on computers, furniture, and property make no sense when you can rent month-to-month or take out a short-term lease. If things don’t go as planned and you are forced to scale back, you don’t want to be stuck with payments for things you would be better off unloading. Renting and leasing keeps your options open. This is extremely important for the first five years.
Use a Staffing Service
It’s not just computers and office furniture. You also want to avoid early long-term commitments to staff. Payroll is easily your biggest business expense. Staffing up before your cashflow is nailed down will be the downfall of your business. You can’t just put off paying your employees until you start getting accounts receivable caught up. And you can’t just fire a few people to balance the budget. Whoever is left will start updating their resume’ on company time. At that point, you’re done.
Today’s staffing agency can provide immediate and temporary staff for everything from computer programming to hospital administration. There is no reason to commit to salaries early in your business. You will be more flexible and have greater cashflow if you don’t. The same is true for renting instead of buying, and factoring when immediate income and credit protection is required.