Have Enough Working Capital: Today’s Key for Tomorrow’s Need
A famous quote says to expect the best but prepare for the worst, and that is a good definition of the reason why every small business should always have working capital on hand or at least a backup plan if you don’t have enough cash. It may mean the difference between success and failure for your small business.
What is working capital?
When you add up all your assets, including cash on hand, then subtract your liabilities, it equals working capital. In simpler terms, it is actual money in hand that you can use for your small business when you need it.
As a small business owner, you know that there are times when you need to have access to quick cash for your sustainability. However, this can be an issue if you have loads of account receivables but you have not in fact gotten paid by your clients yet. A cash shortage can also occur when you have purchased a lot of inventory based on previous sales and expectations that do not pan out. In addition, sometimes a seasonal business can have high and low periods throughout the year but the bills are due every month.
There are numerous causes for why you might find yourself in need of fast cash. For example, you might be waiting for a big payment but you still need to pay taxes, make payroll or order supplies/equipment. If you have working capital, you can draw on that until the payment comes in. Without working capital, you could be in trouble.
What are your options for obtaining working capital?
Author Mark Twain once said that you should never wait until tomorrow to do
something you can accomplish the day after tomorrow and unfortunately, many small business owners easily fall into that trap. They know they need working capital but are so busy working, that there is no time for building the capital. Therefore, they keep putting it off until suddenly faced with a cash emergency or unexpected business expense they cannot pay, and then it may be too late.
The first option that may come to mind for building working capital is to borrow funds from a bank. Nevertheless, only a very small number of small businesses have what it takes to qualify for a loan from a traditional bank. Banks require so much collateral and assets that it puts a regular loan out of reach for most small business owners.
You could also apply for a line of credit from various financial outlets. This option may work best for those with stellar credit and an exceptional business model where you have collateral to back up the loan.
Another choice would be to seek out investors who, in exchange for a percentage of your company, will agree to provide you with funds that you can use for working capital. You might find that this is the least expensive option but also the most time consuming.
How can cash advance companies help with working capital?
You may already be faced with a situation in which you need funds right now. If you have yet to create your working capital nest, fear not. There is help for you in the form of cash advance factoring. It may not be a permanent solution, but it can give you a good head start.
Unlike the long-term commitments with traditional factoring, the cash advance
option is a short-term answer for temporary money woes. They can provide you with an advance, based on your account receivables, so that you get funds quickly into your account to help with unexpected expenses. You may also develop a relationship with these payroll factoring companies so that if you need additional working capital, you have someone to turn to.
It is important to note that payroll factoring firms are not ideal for small businesses that are perpetually in debt. You can think of them as a back-up plan for those big financial surprises that are bound to come up for any small business owner.
Today is the first day of the rest of the life of your small business. Make sure you know about a cash advance company, Like Financing Solutions
(www.fundmypayroll.com) should you have a lack of working capital in the future.