Just the thought of starting a business can
be a scary thing in itself. But to see your business struggling after start-up
can make giving-up an attractive course of action. Even though times might get
this rough at one point in the life of your business, it’s important to
remember that you’re not alone. Tons of entrepreneurs have experienced the same
problems with starting a business. The secret to coping with the harsh arena of
entrepreneurship is proper capital management.
Working
capital is basically the funds you need to sustain business operations after
start-up, compared to the generic term capital, which are funds you need to
actually start the business. Working capital is important because, upon
starting your business, there will be sunk costs that you need to recover to
stabilize the business. Sunk costs are
basically the costs that you’ve already laid out to start the business – costs
you cannot recover even if you choose to close the business. There comes a
point in a business’s cycle where the revenues accumulate to a point where
you’ve earned enough to say you’ve recovered your sunk costs. This is the point
where your business starts to earn a net profit.
Before you get to that point though, as an
entrepreneur, you’ll have to find ways to sustain business operations through
sufficient working capital. Seems simple? It may be. But there are a couple of
problems with acquiring and keeping working capital, especially for small and
starting businesses. This includes increased credit transactions. The consumer
climate today, for some reason, is so fond of purchasing goods and services on
credit. It may be convenient for dear consumers, but means hell for the owner
because this screws up cash flows really bad. Without sufficient cash flows,
you won’t have the necessary liquidity to finance on-going business operations.
Another problem usually encountered with cash flow concerns is the natural ups
and downs of business operations.
The best and most conventional way of dealing
with problems regarding working capital is through acquiring working capital loans. These business loans are usually short-term (payable within months) in nature. The loan
can serve as a buffer until business operations and revenues stabilize.
The basic conditions of acquiring a working
capital loan are a lot like any other loans, only in this case the terms and
conditions are more flexible because of its short-termed nature. The lender
basically asks you to establish reasonable proof of future repayment.
This can come in the form of current and monthly revenue statements, a projected statement of future cash flows, a list of
assets that the business owns, and the credit history of the owner.
Banks usually have set ‘packages’ for these
types of loans. Alternatively, there are also other companies that have a
different way of financing working capital. These alternative financing
companies are usually built primarily to help out small businesses, which do
not often have very good credit ratings. Hence, conventional banks tend to
reject these type of loan applicants. Alternative financing companies usually offer more
flexible terms and conditions, which are tailored to each business’ repaying
capacity and projected profits. They usually do this through a merchant cash advance
system or a similar system. Since the service is specialized, hundreds of
businesses have found them more viable for potential approval as well as business growth.
At the end of the day, struggles with cash
flow and working capital are all just bumps in the road and are a natural pain when starting a business. But with the right resources and the right financiers,
any entrepreneur should soon see the light at the end of the tunnel.
