It doesn’t matter how much planning you put into the financial side of your business, there are always going to be those times when you need an injection of cash and you need it fast.
A healthy cash flow is vital to every business and when something has gone wrong, such as a client paying late, it can really mess things up. When cash flow is poor, you can be forced to halt planned projects, put recruitment efforts on ice or even have to consider closing your business for good!
It doesn’t have to be this way! If the bank aren’t willing to extend you any more credit, here are a few things you may be able to do to free up some quick cash when you need it most:
Sale and Leaseback
This isn’t the most economical decision you could ever make as a business owner, but if your business is in dire straits, you may want to think about entering into a sale and leaseback agreement. This is an agreement whereby you sell some of your company’s assets (equipment) to a leasing company and then lease it back from them for an arranged period of time. Often, leasing companies will pay you the full value of your goods so it can be a great way to get yourself out of a sticky situation, not least because they normally pay as soon as they take possession of your goods.
Of course, you will have to lease your equipment back at an agreed-upon rate for an agreed-upon period of time, but at least your costs will be fixed and it won’t be you who takes a hit on the depreciation costs.
If you own equipment, machinery or vehicles, refinancing is another great way of raising working capital for your business. If you choose to do this, it is likely that the cost of the refinancing will be tax-deductible, which means you could end up paying a bit less in taxes that year – that could come in very handy for cash flow purposes – and you will still be able to use the refinanced equipment as usual with no disruption to your work.
Use Personal Money
It’s often not a good idea to use personal money to prop your business up, but if you do have a nest egg sitting around and using it means the difference between getting your business back on track and having to shut shop, it could be worth considering. You could use money from savings, sell an annuity, or in an emergency you may even use a credit card. Ideally, you should only take this step if you’re confident your business can come back and you can afford to lose any of the money you put in if it comes to the worst.
Cash flow problems are common, so instead of panicking, have a serious think about your financial position and perhaps investigate the above options to see if they can help you get over the hump.