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Money is the bloodline of any business. So, your cash flow management style can either make or break your enterprise. But tending to finances is not always easy. In fact, it’s one of the toughest jobs in running a business. And part of it is determining whether your business needs external funding, maybe a commercial loan, line of credit, or cash advance.
External cash injections come in handy from time to time, enabling you to expand your business or get out of financial jams. But taking financing is a big decision that many entrepreneurs often struggle to justify. How do you determine when to get a loan or other financing for your business? This is a weighty question that many small business owners find quite challenging to answer.
You have to take an objective look at your business from a fiscal perceptive to see the holes that financial support can fill. To get started, look out for these telltale signs of a business needing financing.
Your cash flow is running low
If money is your business's bloodline, cash flow management is its beating heart. Healthy cash flow indicates a thriving business. It's important to track the monies coming in and going out of the business to ensure there’s always enough cash around to cover recurring expenses (salaries, bills, supplies, etc.) and keep the business running.
Negative cash flow or poor cash flow management can severely cripple your business. In fact, 82% of small businesses fail due to cash flow issues. But dwindling cash flow is not necessarily a death sentence. You can simply boost your cash flow to healthy levels through external financing. For instance, you can factor unpaid invoices to unlock funds or get a line of credit to see the business through a tough low season.
It’s time to expand your business
Every entrepreneur aspires to grow their business. Business growth could mean reaching new markets, launching new products and services, or moving operations to bigger facilities. Growth is a validation of business success. But venturing into business expansion can be expensive, even prohibitively so, for cash-starved SMBs.
If your business is aching to expand, don’t hold it back for not having enough money to facilitate growth. Seek financial assistance to fuel the expansion without disrupting or straining your delicate internal cash flow. Banks and alternative lenders have countless financing options designed to fund every aspect of business growth, from purchasing/constructing commercial property and buying additional assets to opening new trade routes.
You need a financial cushion against business risks
Does your business have a financial cushion or safety net? Businesses are inherently risky. The business landscape, market, economy, and social-political atmosphere can change drastically without warning, swinging the business dynamics in a whole new direction. Besides external factors, businesses also face numerous internal risks, such as employee turnover, disruptions, disasters, insecurity, and logistical issues. This is why it’s so important to have a risk management strategy that incorporates financial cushioning.
A financial cushion is simply the sum of money you put aside for a rainy day. An ideal risk cushion should be worth 3 to 6 months of operating expenses. But the risk cushion doesn’t have to be your own money. It could be a line of credit or other readily available financing solution.
Innovation is inevitable
Your business must continuously evolve with the times to remain relevant, competitive, and efficient. Today, small businesses are embracing digital technologies such as the cloud and e-commerce to have a fighting chance against large corporations. Digitization in the data-driven world is no longer an option. It has become a big part of running and growing a business.
If you’re still reliant on legacy systems and traditional business methods, you probably feel the mounting pressure to modernize your enterprise. Perhaps you’re thinking of advancing your business processes, model, or offerings to better suit modern demands, standards, or markets.
Unfortunately, digital and business innovations are not cheap. And the need for innovation is a sign that your business could use external funding. Come up with a solid roadmap to modernize your business and approach lenders to help you make the leap.
Your enterprise needs more workers
A growing business needs more employees to handle the increasing workload. HR expansion also strengthens the business, making for better customer service and higher output and operational efficiency. Also, if your workforce is overwhelmed or falling short of the expected productivity figures, it might be time to bring in some extra hands and skills.
But hiring is often easier said than done, primarily due to cost. Indeed.com estimates that hiring a single employee costs anywhere between $4,000 and $20,000. And that doesn't include the employee's salary or benefits. Cost can be a huge obstacle in getting the qualified talent your business needs to thrive. But you can always turn to lenders and funders for a much-needed financial boost to expand your HR.
Business opportunities are passing you by
Are you missing out on emerging business opportunities? Maybe your business lacks the financial backing to seize fleeting or once-in-a-lifetime opportunities such as mergers, partnerships, trade avenues, or sales deals.
A cash infusion can put your business in a better bargaining position when negotiating deals and provide the financial muscle to take advantage of potentially lucrative opportunities. Never let a juicy opportunity pass you by — some come around only once.
Bonus tips
While the signs we’ve discussed here are good indicators that your business needs financing, you don’t have to wait until it becomes so apparent. With proper business planning, you should anticipate your enterprise's financial needs and cater to them well in advance. Some financing products take quite a while to process, such that it might already be too late by the time you get the money. In short, avoid scrambling at the last minute in search of funding.
Also, take all these signs with a grain of salt. Not every scenario warrants financing. In some cases, taking business loans and other funding can negatively impact your business. Evaluate your business model and financial needs to ensure you're seeking financing for all the right reasons and that your business will comfortably handle the associated costs and repayment obligations.
Here are some situations where you should probably avoid external financing, especially the debt-based kind:
- You already have too much debt.
- You’re taking on debt to repay other debts.
- You don’t have a clear business plan.
- The business can’t afford the repayment.
- There’s too much at stake.
Get business financing with Lendzero
If your business relates to any of these signs, you should start exploring your financing options before it's too late. Lendzero can help you do just that.
Lendzero lists all the financing products and services available to your business in just a few quick clicks. We also pre-negotiate with all the different lenders to ensure you get attractive deals with reasonable limits, terms, and conditions. We’ve got just the solution for you, whether you need to expand your enterprise, hire more workers, drive innovation, or boost your cash flow.
The platform is simple and easy to use too. Sign up to Lendzero to enjoy unparalleled financing assistance.
