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Everyone wants to save money, but figuring out how to do it can be an overwhelming task.
“Where do I begin?”
“What resources are out there to help me save money?”
“Should I focus on operating costs? Payroll? _____? ______?”
The list of dreaded questions goes on and on.
The good news is that there are a variety of options to help small business owners improve their cash flow. Not only that, but when done correctly, these small actions have the potential to take your business to the next level. Here’s just a few:
Business Expenses: The first thing to do is take some time to examine your operating expenses and carefully consider what is and is not necessary at the time. Categorize your expenses into (1) absolutely necessary and (2) nice, but can get along without, and see if you can identify small opportunities to save money. It may not seem like much at the time, but it can add up fast!
Incentives for Early Payments: Depending on your business type, incentives for early payment might be an option. By offering some type of discount to your customers for paying up-front, you can increase your cash flow instantaneously AND save your customers money. It also saves the business time and effort when trying to “chase down” payments in the future.
Review your Business Model: Creativity can be a powerful tool, even in the realm of financing. Take some time to review your business model and see if there are any new and innovative ways that you can generate more revenues that you have not done before. Are there any additional products or services you may be able to offer? Can you sell your products online? Are there any training courses you can offer for your customers? If you are out of ideas, try asking your customers what they would like. Not only will this expand your business model, but can provide you with additional revenue streams.
Refinance Options: Your business might benefit from a debt refinance option (especially if your current debt has steep payments or if you are facing a large balloon payment). For refinancing, you will have one of two options:
- Straight Refinance – this is where the lender may be able to provide a lower interest rate and/or re-amortize the debt over a longer period, resulting in lower monthly payments.
- Refinance with Cash-Out – this option is for those businesses that need additional working capital or are looking to fund some type of expansion. In this case, if there is equity in your building, you could borrow against it and use the cash for business operations.
Loan Deferments: If your business is experiencing severe financial difficulties and you have explored all other options, you may have the option to defer your loan payments. This option, however, is granted only for extraordinary circumstances and you must be able to show your plan for how your business will improve financially after the deferment period. Most deferment options range from anywhere between three to six months, which will help free up cash for your business to cover expenses during a time of revenue decline. If you decide to go the deferment route, be sure to ask about the following details:
- Is this a principal-only (where you continue to make interest payments) or principal-plus-interest (where interest keeps accruing during the deferment) deferment?
- How does the catch-up plan work? Does the bank put these payments at the end of the loan and extend the maturity, or will they require the catch-up to be paid as soon as the deferment period is over?
Contact your local lender to discuss your options and what would work best for you and your business.
These are some of the best ways for small business owners to improve their cash flow today. While some of these may seem small, the long-term effects can be substantial.
As always, ask your lender about these options and other ways that you can preserve cash flow and take your business to the next level.