From day one of a company’s life, one of the most important things a business owner should do is focus on cost control. This not only subscribes to the theory of lean startups popularized by Eric Ries, but also helps you know where every pound is going, and allows you to cut unnecessary expenses.
Having a positive cash flow allows you to focus your efforts into your growth strategy and a smooth management, and not worry about your business fixed needs.
Taking on a working capital loan can help you go about your everyday business, this is why they were created, as a short term loan that can give you the cash flow your business needs while you wait for the sales cash to start flowing in.
Now we’ll go through the importance of a healthy working capital, what you can do to keep it balanced and the options you have when things are not looking great.
Get a grip on your costs
Who wouldn’t want a glamorous company in a nice building, with hundreds of employees and a fridge full of snacks? Well, it’s not bad to set that goal, but know your current situation, focus your expenses in what you need and cut others that are not essential, like:
- An overrated office that a company doesn’t really need or uses.
- Big representation expenses for the sales team.
- Expensive supplies that can be cheaper somewhere else (keeping the quality).
- An unproductive employee or business department.
- A wrong strategy on its own.
Cutout expenses will allow you to maneuver your company to where the money is, to what the consumers are needing and to pivot your business plan before losing a lot of money for not reacting soon enough.
Data published by the online advice platform Startups.co.uk shows that over 40% of start ups fail for not having an attractive enough product for i’s market, which you can very much change if you detect it on time.
Working capital
The same data shows that almost 30% of new companies fail due to insufficient capital. Most of the time, because the entrepreneur didn’t properly calculate how long it would take him to sell the product or service he offers. Also, because he didn’t take into account how long would it take to actually collect the receivables.
This are some tips for you to maintain a good working capital on your business:
1. Maintain cash flow for delayed payments. Even if you have a marvelous product or service that everyone wants, cash will take it’s time to reach you. From a new launch to an actual money making product, it can take a while before you start collecting and you’ll have to pay your fixed expenses no matter what.
2. Stock up on basic supplies. Make sure that your operation will not be interrupted by anything, including a low stock. If you have a client base, you cannot, under any circumstance, fail to deliver.
3. Apply for a working capital loan. This way your fixed expenses won’t suffer from lack of receivables and you can maintain production with rent, payroll and supplies on the shelf. You’ll have to pay back small amounts each month but this will help you ensure your operation.
4. Keep your working capital in check. If you already have a working capital loan, use it wisely. Do not overspend in things the company (or you) don’t really need to keep running. Use it as a way to maintain a clockwork operation.
5. Cover seasonal low debt collecting. Some seasons can be hard for companies. If you are in retail, business will be booming on the holidays, but that’s not the case for most companies. Make a risk receivable analysis to detect when will you need to ask for a working capital loan.
Where can you get a working capital loan?
A simple internet search can give you the answer, like SME Loans, Funding Circles or Capify. But remember that not every financial company out there is legitimate, so be very careful on how to choose the one that fits you.
Before you sign any contract, you should take a hard look at the terms, interest rates and payment dates to be completely sure that you can handle this particular financing product.
Do not underestimate the value of having peace of mind that your operation is financially secure. Reach out to working capital loans and choose the one that fits better with your profile. Once you have it, use it in short term needs and pay on time to have a better credit history.
