The end of a year is when most businesses see a significant boost in cash flow. The holiday season is typically a time when businesses see an increase in foot traffic and online orders. But 2020 was far from typical, not least because Ontario was in an extended lockdown over the holiday period. So how best can a business generate income in such a situation?
The traditional solution to the problem of cash flow is to increase revenue and cut back expenses. What happens when this is not enough? There are 3 ways to increase a business’s cash flow: debt management, financial forecasting and factoring.
To manage your cash flow, you also need to manage your debt. It may well be that your business has more debts than it did before the pandemic. These debts could be in the form or a loan, maxed out credit cards, or something else.
Debt can be daunting. However, you can manage it. With debt consolidation, you take all the debt you have and put it all together. Instead of paying multiple lenders and various interest rates for those different loans, you put that debt together and pay it to just one lender. Since interest rates are extremely low at the moment, and are forecasted to stay low until mid-2021, you are likely to get a much better deal than what you are currently paying to multiple lenders, whether it’s the bank or a private lender. Look for a broker who can go through different options for you, and from a variety of lenders.
If you’re not already doing any forecasting, take some time to go over the factors that will impact your business. It may perhaps seem pointless to do forecasting as things are constantly changing. However, looking at trends affecting your industry and going over projections, reports and forecasts from reputable sources about the economy, government relief packages and consumer behaviour will give you the information you need to make good, informed decisions.
Forecasting will enable you to decide on what you can do to improve your business performance, or to adapt more quickly to new regulations and changes to customer behaviour. Forecasting will help in creating an annual budget/forecast and in creating a quarterly forecast (or semi-annually), for revenue and expenses. You would need to revisit the forecast after each quarter or half year to look at actual versus forecasted results. This will help you keep a close handle on your business and the factors affecting it as well as let you make adjustments, if necessary, throughout the year.
If you factor your invoices, a factoring company will buy the invoices that haven’t yet been paid for by your customers. This means that the factoring company will pay a percentage of the total receivable amount, and they will then collect the pending payment.
The benefit of factoring invoices is that you will have cash to meet your immediate needs and have access to the working capital you need. This financing method is more business friendly than the solutions you are likely to get at a bank, as you’ll be able to raise cash without incurring more debt. Another benefit is that equity is not needed; you are not giving over control of your business in any way. Once the contract ends, everything ends – unless you want to renew the contract. Nor will you need to put up collateral. Unlike most loans which require collateral such as equipment or property, all you need is unpaid invoices. These serve as the collateral for invoice factoring.
Once you have the financing you need and your cash flow is at a point that allows you to breathe more easily, carefully monitor your repayment. If you are not sure about which cash flow solution fits you, speak to a professional who has experience in providing expert financial guidance and solutions to business owners.
GreenFlow Financial understands the financial needs of business owners. Our team takes the time to ensure the solutions we offer meet your needs. We provide diverse options through over 50+ banks, monoline lenders, credit unions, trust companies, and exclusive private investors and lenders. To speak to a GreenFlow professional about how you can increase your cash flow, click here.
To learn about some of the other factors that help increase cash flow, click here.
This article is the second in a series of articles about cash flow for business owners. The first article is about how business owners can consolidate their debt.