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Navigating Cash Flow Challenges: Recognizing the Red Flags and Securing Your Small Business's Future

Cash flow is the lifeblood of any business and it can be especially challenging for small business owners. Uneven revenue, delayed payments, inflation and unexpected expenses can all make for a miserable day (or month...). Not to mention rising interest rates!!! Have no fear...this article can equip you with the knowledge to recognize the warning signs of cash flow pain, take action and make decisions leading to healthier financial future.

The problem: cash flow pain. It's that sinking feeling you get, that urgent tug, as a CEO goes about their day while expenses outpace income. Is it difficult to pay bills, meet payroll, invest in growth, or even sleep soundly at night. Don't ignore the signals.  Watch out for:

  • Volatility with income and expenses: Up & down cycles are a red flag. Aim for consistency! Rely on your Board of Advisors to discover new revenue streams and ideas to improve margins. Perhaps address supply chain issues?

  • Personal loans into business: As the owner, you gladly support your business, but are you constantly injecting equity to cover operational needs.

  • Reliance on short-term loans: Temporary bandages won't heal the pain. Seek sustainable solutions. Are long-term assets being funded with short term lines? Has your Revolving Line of Credit been paid down (or paid off) recently or did you reach a high point and stayed there? Have you taken on high cost debt to support operations?

  • Persistent late payments: You are not the bank so don't let customers use you as theirs. Don't be afraid to establish clear payment terms and enforce them. Conversely, has your reliance on trade debt trended upward and taking longer to handle accounts payable?

  • Struggling to meet financial obligations: Bills, Loan Payment sometimes a day late...a week late? Falling behind on bills signals deeper issues.

  • Avoiding growth opportunities: Have you let opportunities pass by without thorough consideration on the positive impact and complimentary effect on you operation?

Deeper Dive: What is Your Capital Stack & Capital Structure Your Capital Stack is simply the layers of debt plus equity that exists in your business; the funding sources you used to get to this point. Finding the right balance is what your Advisor Team can do with a "Capital Stack Analysis". A "healthy stack" (whether it's simple or complex) has multiple, diverse layers which can reduce risk and create flexibility in the capital structure.

Wait! All is not lost - Action can be taken today.

  • Optimize debt financing: Renegotiate existing loans or consolidate, explore alternative lenders (lending structures), and avoid excessive debt burdens. Having inadequate Capital can be dangerous. Is a Line of Credit in place to handle short-term working Capital needs?

  • Use equity wisely: If raising additional equity is in play, consider private equity sources or crowdfunding, but remember: equity comes with ownership dilution. And use professionals licensed to discuss equity solutions.

  • Commercial loans: Term loans, lines of credit, and SBA loans offer diverse options. Commercial loans, lines and commercial mortgage funding can be used properly for successful results. Have you considered buying commercial real estate for you business operation and avoiding perpetual rent increases? Engage a trusted professional with experience putting the RIGHT Capital in place, to help navigate SBA Programs, choose the proper lender, negotiate the best terms and coordinate the entire transaction.

  • Consider asset-based financing: If possible or appropriate, consider using your accounts receivable, inventory, or equipment for quick access to capital. Certain businesses in growth mode can use these methods to scale.

Some Planning Goes a Long Way:

  • Capital Plan: Do your goals align with the financing in place? Is there even a Strategic Plan in place that targets key goals? Creating a budget and forecasting cash flow can help a CEO make decisions and take critical action.

  • Assess and Adapt: "The Plan" should be written, liquid and flexible. Regular assessment of your financial health is important. Over time you may have to adjust your capital structure as new opportunities come up, as your business evolves and as market conditions change.

Climbing that 'Cash Flow Mountain': Right Tools - Right Team

By recognizing the signs, understanding your options, and implementing strategic solutions, the wise CEO can steer their small business towards a financially secure and prosperous future. 

Jason Kohl, CCIM and his team welcome the opportunity to become a trusted advisor for CEO's Nationwide. Try our CAPITAL STACK ANALYSIS and we'll have a Strategy Call to help check where you are and where you want to be. Or schedule a Discovery Call today.

P.S. This blog post is intended for informational purposes only and should not be considered financial advice. Always consult with a qualified financial professional before making any major financial decisions.

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