Starting a new business is an exciting adventure. The prospect of putting your own idea into a working market, building up your company from scratch and seeing success can’t be beaten by much. However, with all that excitement comes the hard work and grind of making your business get to where you want and achieving your goals. So, what can be done to make sure you have the best chance of success? Planning along with funding are arguably the most important aspects when it comes to the survival of a business within the first year of trading. Cashflow is the lifeline of any business and when starting, managing your funds and making the best use of the money available will be key to the businesses success. There are some tactics you can put into place to make sure you spend your money effectively when starting out.
Likely Causes Of Cash Flow Problems
For a lot of businesses, it’s simply timing. With late paying clients not getting their invoices in on time, it can mean you get put behind on your overheads. The business might well be a success in sales terms and have lots of success, however, if these don’t come in on time it means that ultimately you can’t pay your own expenses.
Usually, cash flow problems stem from a lack of planning. Before you start any business, you need to have a detailed look into your cashflow forecast. It’s imperative that you look at all incomings and outgoings. Owners need have to consider all investment repayments and start-up costs. What will potential long-term effects this have on cash flow? How long will it take payback investment? Naturally, businesses will want to pay off those debts as soon as possible, but it’s important to keep a good amount of cash in reserve. A ‘rainy day’ fund. This can help with large unexpected costs, covering you if machinery breaks, or you need to pay a yearly or quarterly tax bill.
Taking into consideration seasonal variations is also hugely important. In some sectors, certain months of the year are more profitable than others. If you rely on some months more than others, it’s vital to ensure you have enough cash to keep you going for the remaining months.
It’s easy to get ahead of yourself when first starting out. Naturally, most business owners want to buy things outright, so it’s easy to spend and spend. However, there are lots of things you can do to ensure you protect your cash flow.
Try to resist using all your cash to buy equipment outright. Asset finance can be a brilliant way of keeping one hand on the purse strings and keeping your cash flow healthy. Asset finance essentially gives you the option of spreading out some of your compulsory equipment costs over a period of a time. It means you don’t have to make one large payment up front, trimming the amount of cash you have before you’re even started, as well as making cash flow planning that bit easier.
As well as hire purchase, an alternative can be leasing. As opposed to buying a company car outright, a lease can give you a bit more breathing space when it comes to spending your cash. Paying in monthly amounts means you will have more funds when initially starting out, giving you a better look on cash flow.
During the process of raising asset finance, a finance broker would be massively helpful. They will help you decide on what is the best route forward when it comes to picking out leasing, or asset finance options. Most people start a business using their own finances, so making sure you spend at the right time is essential to business survival.
Bank Loans and Invoice Financing
Bank loans are one of the more traditional methods for raising initial business funds. However, banks have become more selective when lending, especially to new start-up businesses. They will assess how much of a risk lending to your business can be. If you have a viable business plan and a great idea, usually you can agree with a sum with the bank, but as a new business expect to have to provide security. Repayment plans are also put into place before an agreement is made, so you efficiently plan the viable means of paying the loan back.
For B2B businesses invoice financing can be a brilliant way to raise up extra funds, but unfortunately, not enough owners know that it can be available to start-ups. Effectively invoice financing lets you raise cash based on the value of your invoices. A factoring company can advance you a percentage of invoices, which can importantly boost your cash flow and free up time not to chase down late paying clients.
If you’re unsure on the most appropriate way to get funds, a commercial finance broker will be incredibly helpful. They will find you the best options available when it comes to finding a suitable bank loan, or asset financing deal. A broker may also be able to help you secure money for the business if you were looking at a partner or possible investors.