Financial shortcomings for a business are not always the result of bad planning. There are plenty of situations that can arise and deplete a company's cash reserves so quickly that it has to make alternate plans to meet its ongoing financial obligations. If you run a business, then you know that there comes a time when you are faced with having to choose where your cash goes and none of the decisions you make are going to benefit your business. A proactive business professional works hard to establish a network of financial contacts that he can call on when working capital runs short. It is always important to have resources and outlets when you need working capital in a hurry.
Every business owner has that stretch of time where he prays that nothing goes wrong because the company is short on working capital. There is light at the end of the tunnel, but the tunnel could wind up being two weeks long. In that two weeks period, one of the company's most important machines breaks down and the repairs will be costly. The company cannot function without the machine, so the working capital is sunk into the machine repairs. That leaves other tasks such as making payroll, paying vendors, and paying facilities costs up in the air.
Your company was just offered a prime spot at the biggest trade show of the year, but you have to put the deposit in right now. As you sit down and figure out how much the deposit will be, you suddenly realize that taking that prime spot will leave your finances weeks behind. But if you don't take the spot, then your competition will and that will cost you thousands, and possibly millions, in lost sales. These are the kinds of decisions business owners face that can cause the working capital to dry up fast and leave the company scrambling to pay its bills.
The past due invoices on your aging report slow your cash flow and force you to create some past due invoices of your own. You don't want to make your most important vendors wait for payment, but you have no choice. After waiting for weeks, your vendors tell you that they want payment now or your account will be suspended. Since you cannot operate without a direct buying line to your vendors, you approve payment and see just how little it leaves you in working capital. Now you have to spend time trying to find ways to pay your employees and pay your other invoices before those accounts get suspended as well.
A quick solution that can be set up in 3 to 5 working days is an invoice factoring agreement, that will allow you to get a line of credit based on the face value of the unpaid invoices your business has outstanding. Accounts receivable financing is becoming a popular and fast way to get the cash flow you need to grow the business without having to wait for outstanding invoices to get paid.
Your company has hit a rough patch and has experienced significant turnover in a short period of time. This is not something you planned for, but you need to do something to maintain productivity. The only answer is to bring in a temp agency and pay some of your existing employees overtime. You would think that the wages that would have been paid to the employees that left would cover the costs, but using temps brings down productivity, which affects revenue, and paying overtime is never in the plans. When you finally get your staff back up to where you need it to be, months have passed and your cash reserves are almost gone. If you don't meet payroll, then you could be looking at another bout with expensive turnover and that could be a financial hurdle that your company could never jump.
No business owner wants to have to borrow money to run his business, but sometimes it just cannot be helped. The best way to handle these kinds of cash reserve emergencies is to have a good relationship with your bank that allows you to have a working capital loan option on standby. Working capital loans are often short-term obligations that differ from other kinds of business loans in that the application process can be expedited. Your bank understands just how important working capital is to your company and that is why your bank has programs that can help.
The moment you sense financial trouble brewing, you need to get on the phone with your bank and talk about a working capital loan. Before the repair crew leaves your site after fixing your important piece of equipment, you need to have an assurance from the bank that your working capital issues will be taken care of. It is much easier to move forward with your company's future when you know that these sudden business emergencies are not going to be enough to take your company down for good. It gives you a sense of confidence and it helps you to make better business decisions.
Even the coolest business owners find themselves making bad decisions when they are backed into a corner. When the cash reserves are low and bills are pending, it is easy for a business owner to panic and make bad decisions. But when you know that your bank is in your corner and able to provide a cash flow to keep your company going, then you can make good decisions and do what you need to keep your business plans together. The worst thing a business can do is stray from its plan just because of a financial bump in the road. Working capital loans remove that bump and clear the way for smooth sailing.
The frustrating thing about business emergencies is that they are unexpected. If you wait until an emergency happens before you start talking to your bank about working capital, then it may be too late. The best move you can make is to start talking to people in your financial network now about the possibility of taking out working capital loans in the future. When you have that option already solidified, then it is easier for you to react properly when the time comes.
Remember that working capital loans are not just for business emergencies. As you plan out your accounts payable, you will see gaps in your funding that could lead to problems. The best way to fill those gaps is to talk to your bank about working capital loans and have those loans ready to go when the time comes. The more planning that you do to help enhance your working capital options, the better prepared you will be to handle issues as they come up.