How to prevent your business funds from running dry

How to prevent your business funds from running dry

Reading Time: 3 minutes(Last Updated On: August 20, 2019)

Over 50% of new businesses fail within the first five years of establishment. This staggering statistic is one that entrepreneurs accept upon establishing their own business. The upsetting fact is that while many business owners are discouraged to continue on their ventures in times of zero cash flow, this is a part of business.

So, instead of throwing in the towel, know this: You can run your business without any incoming money. This article will give you 5 excellent tips to help you with this while revealing how your business can continue to operate when there is no money coming in, as well as how to prevent it from happening ahead of time.

Imagine a no-money situation

OK, so accepting that your business venture may go sour is not pleasant, but a good way to deal with and overcome this problem, if it does arise, is to imagine yourself in that position. Even if things are going smoothly for you right now, try and work out what immediate actions you would need to take if your capital and income did run dry. Would you need to take up a temporary job? Would you need to sell your house to acquire cash? Would you need to apply for a business loan? Jot down any actions you need to take on a piece of paper and always keep it handy as your “emergency plan”. You never know when you may have to resort to it.

Always have a cash reserve.

This shouldn’t even be listed as a tip, as its more of a fundamental rule, but we’ll mention it here anyway so that it’s not overlooked. The concept of “petty cash” is well known and all business have it – readily available cash for small items. Now take this concept and magnify it so that it becomes a significant source of cash for major expenses and one that you don’t touch. This can prove to be a business lifesaver and a huge breath of fresh air in times of a money drought.

Give customers incentive to pay invoices earlier

One of the main reasons businesses run low on cash flow is not necessarily because business is scarce, but rather because their customers are not paying invoices on time. A very useful tactic is to offer your customers discounts for early payments. Even though it is their responsibility to pay, and on time, this is most probably going to happen now and again, so give them the incentive to pay their invoices early. This doesn’t mean go all out with discounts to the point where you actually lose money on the work you’ve done, but a little compromising won’t hurt. Which brings us on to our next tip.

Consider Invoice Factoring

Invoice Factoring is an excellent option to take into consideration. Invoice factoring provides small-to-medium sized businesses with a means to cover outstanding invoices. In effect, a business sells its invoices to a lending company, also known as a third party, that provides invoice financing for small businesses. Invoice factoring serves as an excellent funding option if your business has accumulated large amounts of unpaid invoices.

Separate your business and personal finances

It is common practice among business owners to keep their business and personal finances together. The problem is that this creates the illusion of more business capital then there actually is. It is essential to separate your business and personal finances to better understand the financial position your business is in and to plan ahead efficiently.

As you can see, these valuable tips are straightforward to implement and saving your business is not as difficult as it looks. It’s the overwhelming reality of being in a no-money situation that causes many talented business owners to give up on their businesses to easily. With some careful management and planning, you’ll always be a step ahead of any financial business threat and ready to take it on like a champ!

Disclaimer: The information contained in this article is provided for informational purposes only, should not be construed as legal advice on any subject matter and should not be relied upon as such. The author accepts no responsibility for any consequences whatsoever arising from the use of such information.