Running a successful business involves an interesting combination of risk, sacrifice and discipline. From time to time, it requires investment to see improvements. At other points, it means giving up something in the pursuit of something bigger. Above all, it demands discipline to achieve your ultimate goals.
Of course, one of the biggest risks for a business – whether a startup or an established company, is debt. Choosing to take on debt to secure much needed capital can be a smart decision, as long as you have a plan and capability to pay it back in a timely manner. However, there are many ways a business can unintentionally fall into debt that should be avoided.
Here are 3 ways businesses fall into debt that you should know, plan for and avoid at all costs:
- Unpaid Invoices. Many business owners confuse profitability and cash flow. A company can actually have incredibly poor cash flow while looking profitable on paper. How is that possible? One of the top reasons a business could find itself in this position is due to outstanding accounts receivable. Delayed payments from clients is an all too common issue for businesses, and it can quickly cause them to fall into debt. Of course, the easiest way to avoid this situation is to develop a proactive, professional and courteous collections process.
- Lack of Flexibility. If a company lacks financial flexibility, the business owner may have to make hasty decisions. Without forward thinking and thorough planning, the business can suddenly find itself in tight situations where unexpected costs pop up, but there is insufficient capital to cover those expenses. It may also mean missed opportunities for further growth. The best way to avoid this is to always maintain a cushion of cash to handle the unexpected and provide the flexibility to seize opportunities when they arise.
- Unavoidable Conditions. Another tough situation businesses can find themselves in, at no fault of their own, is unfavorable market conditions. Industry trends can quickly change, markets are unpredictable and consumer preferences evolve. There are countless factors that can negatively impact a company. As mentioned above, the best way you can prepare for this scenario is to always maintain a cushion of cash. It also helps to have a source of funding on standby.
Are you searching for a cash solution that will help you utilize financing sparingly and sensibly? Funding that meets your short-term capital needs, without jeopardizing your business’ long-term financial health? Consider partnering with the team at firstamericanmerchant.com. We have years of experience in helping business owners secure the financing they need to cover daily costs, seize opportunities and maintain flexibility.