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Running a business is never easy; every day you have to face new challenges that require immediate solutions. Of these, maintaining cash flow is the most difficult, especially if the business relies on the sale of physical products. Of course, lack of funds is the last thing a business of this type wants, because without inventory there is nothing to sell. A lingering question is how to find ways to reliably fund a business, regardless of its stage of growth or length of business. As the Director of Star Funding, Inc., I have found time and time again that the following seemingly simple methods can save lives – generally better and faster than traditional loans, and often with better access to capital.
1. Friends and family
It’s one of the oldest strategies in the book, of course, but it’s worth its weight in gold if handled well. Borrowing from friends and family makes sense as these contacts are easily accessible and are able to offer flexible loan terms. If needed, you can also offer them an incentive in the form of a good ROI, free product, and / or capital in the business.
Before you apply, be sure to calculate the exact amount needed. It is a good idea to create a sales projection that deducts expenses; the resulting sum should give you a reasonable estimate of the loan required, and this insight and transparency will be appreciated by those you approach.
The next step is to create a unique pitch. Start off casually, as you would under normal circumstances, describing the business, its goals and accomplishments, and then detail how the funds will help you achieve those goals. Take the opportunity to also discuss the risks associated with the investment, and do not lie, because it will haunt you and your relationship if the going gets tough. In the event that interest begins to wane after these risks are itemized, calmly offer an incentive – perhaps a higher return on investment or potential equity capital.
2. Credit cards
According to the US Small Business Administration, 46% of new and / or small businesses use credit cards for financing. They are definitely a quick way to avoid immediate financial problems and, if used with caution, can in fact be a wise decision.
First of all, carefully read the general conditions. While most of us just run through them, it’s vitally important to realize that they ultimately decide the success and failure of this tactic. Make sure everything in the terms is clear and don’t hesitate to call the company and ask questions.
If your provider doesn’t accept credit cards and you’re short on cash, consider payment solutions like the one offered by American Express. One advantage is that it is not necessary to request a card to use the feature; instead, you buy products as usual and let American Express pay for the inventory. Thus, you will receive a single consolidated statement at the end of the billing cycle.
Related: The Basics of Using Credit Cards to Finance Your New Business
3. Financing of purchase orders
A purchase order is an order issued by the buyer to the seller. If accepted by the latter, it serves as an agreement to produce and deliver goods in various ways. Before starting production, the seller requires cash or a guarantee of payment. However, not all businesses have the funds. This is where purchase order financing comes in handy – where a third party is engaged to lend enough to a vendor to fund a purchase order – a convenient option for businesses in need of immediate cash flow. It can also work because the payment cycle to receive payment from customers is usually long.
Factoring is another option – a process similar to purchase order financing, and primarily used by wholesalers who sell receivables to a finance company at a discount. In this method, the finance company takes responsibility for receiving payment from the customer. Despite the differences in how each method works, they allow companies to access large amounts of working capital in a short time.
Related: Here’s How Purchase Order Financing Can Unlock Your Small Business’s Potential
4. Negotiation of supplier terms
Perhaps the easiest way to generate immediate cash flow is to ask your suppliers for lenient terms, and this is a tactic especially recommended for companies that have a long-standing relationship with their suppliers. But even if you’re a new business, it never hurts to ask about alternative and deferred payment methods, as many providers don’t advertise these options unless asked. Some also allow seller financing, in which companies purchase the product or service using the seller’s capital. Also known as trade credit, this is another convenient way to save time before you can generate enough money to pay.
From a supplier’s perspective, it makes sense to help customers manage their cash flow. Not only does this help keep long-term business with them, it also boosts the sale of inventory, which is much better than not selling anything at all – a win-win for both seller and buyer.
Related: How to find and work with suppliers