Every business entity has the problem of financing its needs. The solution is always found in cash flow management. Businesses sometimes have a surplus of cash, and at other times they have a shortage. The successful business plans for both situations.
Some of the strategies that may be used to finance expenses are as follows:
Short Term Bank Loans
Although these loans are convenient, you should carefully consider the amount of interest that you will pay. If you are borrowing to pay expenses, the interest is increasing your expenses.
Loans from Corporate Officers
These loans may be interest free or lower than bank rates. These loans give the lender the status of creditor, and he or she is among the first paid in the even of bankruptcy.
Business Credit Cards
In addition to helping control cash flow, business credit cards add rewards. If the debt is paid by the due date, credit cards are very effective in creative cash flow.
Selling Fully Depreciated or Obsolete Assets
This strategy can be coordinated with a period of large expense or the purchase of additional assets.
Selling Additional Stock
Although cash becomes available, ownership loses some control of the business. Careful computations should be made so that control is not in the hands of the wrong people.
Issuance of Corporate Bonds
This method should not be used for short term expenses. Although cash flow is increased, bonds should be used for larger corporates assets.
Offering Discounts to Customers
Although you will not collect the full payment for your services, you will increase your cash immediately. When you have the cash available, you can take advantage of cash discounts.
Assets used in any business should be properly maintained for operating efficiency. In addition, equipment should be periodically evaluated to determine that that it is maintaining a sufficient return on investment. The more efficiently business assets are used, the more profits are maximized. Look online for examples of how to finance larger expenses and manage assets to maximize profits.
Keep in mind that successful business entrepreneurs know their inventory and expenses frontwards and back. Even a products and services page as extensive as the PT6A maintenance at PrimeTurbines.com will be looked in a granular way, sizing up orders down to the nuts and bolts. That’s because successful business owners realize that they need the exact amount of cash to pay each bill on the day it is due. They also know that debts should never be paid early except to take advantage of discounts. For that reason, cash flow managers develop cash flow plans at least six months in advance.