Afraid to Ask for Working Capital in Rough Economic Times?

January 25, 2012

We've experienced tough economic times long enough that we need to accept it as normal, permanent or not. This means we need to be strict about all of our expenses and purchases. It also means we need to monitor cash flow.

Besides, if you take charge of your cash flow and do what you need to grow your business, it shows you have a strong business that can survive anything. If you need working capital to grow, then do it. The economy isn't an excuse -- no matter the condition. Businesses have grown in bleak times by getting lines of credit, bank loans, accounts receivables (A/R) financing.

Some owners fear asking for funding because they think others will think their business is weak. It's standard practice for companies of all sizes to obtain financing because that's what it takes to grow the business. Supporting more customers requires more resources, such as more staff, more space, more equipment, and that takes working capital.

Small Business Owner's Financing Experience

One small business owner reported spending most of the workweek chasing down payments from late-paying clients. After receiving financing from a private lender, she now spends only two hours a week doing this. This move has also allowed her to provide employees with a health package.

For her, financing meant more benefits, more business, less time tracking late payments and fewer cash flow problems. Her CPA and banker initially advised against her working with a private lender. They changed their minds and now refer others to the private lender.

You may not need financing now, yet it's worth setting up a line of credit or some other means for working capital. This way, when the time comes, it's already in place ready for your use.

Better Cash Flow Management

Instead of being afraid to pursue financing, think of it as a resource to dodge low cash flow and expand your business. It'll also help you become a better manager of your cash flow.

Once you have cash flow under control, follow these six tips to maintain control:

  1. Monitor cash flow  — constantly.
  2. Have a regularly updated cash flow statement. It'll help you forecast future cash flow to avoid bumps.
  3. Prepare for emergencies. If you have a line of credit or other financing in place, you'll be equipped to handle the emergency.
  4. Review all expenses looking for savings opportunities.
  5. Track accounts payables and accounts receivables, especially aging A/R.
  6. Know how much cash your business requires to operate.

Keep in mind that you have other options besides banks. As you read, a banker referred a client to a private lender. Services businesses have a harder time obtaining a loan from a bank because they don't usually have collateral.

Don't let current economic conditions stop you from moving forward with your plans.

What other ways can an owner better manage cash flow?