Though many small businesses rely on equity investment for their startup funding, most entrepreneurs still use their personal savings, private loans from friends, and financing resources to launch their business. This leaves them with a small, fixed amount of capital with which to establish themselves. As a result, most small businesses operate on very tight budgets that leave little room for extraneous spending, and that leaves businesses vulnerable to cash flow issues.

Without wealthy investor backing, new businesses often don’t have fast access to money when they need it. Getting financing through your primary banking institution can be difficult with an undeveloped business credit profile, and doubly so for businesses that are already relying on a loan to finance their business. If a piece of equipment breaks down, market conditions change, or clients simply pay late, these businesses may not be able to keep the lights on, much less keep their employees paid. Alternative finance solutions like invoice financing, supply chain finance, or payment plans, are critical tools for overcoming these early challenges, and stabilising a business’ cash flow in the long term.

Surviving surprise cash flow shortages

When calculating the size of the business loan they need to start their business, entrepreneurs generally just calculate their expected operating costs, less their projected revenue. This doesn’t account for the long list of unexpected costs that invariably arise. Every business has to deal with fees, equipment breakdowns, taxes, and poor sales that it didn’t account for early on. These growing pains are normal, but they’re also responsible for the massive proportion of businesses that fail in their first year.

To protect themselves, businesses need fast access to affordable financing that gives them the cash and the time they need to adjust. Alternative finance institutions like Fifo Capital are ideal for this, because they work fast. While regular banks often take weeks or months to process a loan application, Fifo Capital allow businesses to finance invoices or apply for an unsecured business loan in just 1-3 days. This means that businesses can react to cash flow issues after the fact, instead of being forced to try to anticipate them.

Managing supply costs

After dealing with unexpected costs, it’s common for a business to run into a supply problem. Without sufficient funds to pay suppliers, it can be difficult to maintain normal operations, which then prevents the business’ financial recovery from the initial cash flow interruption.

Supply chain finance solves this problem elegantly. Instead of having to come up with the initial investment up front, businesses can pay their suppliers out of a separate credit fund that’s furnished by the financial institution’s investors. This ensures that suppliers receive their payments on time, and keeps your business running smoothly while you manage payment at a later date. Not only does this help to keep your business’ income stable, it also ensures that supplier incomes are reliable, ensuring that they can also continue to offer top quality service to you.

Stabilising irregular revenue

All small businesses deal with late payments, and many business owners spend hours every day chasing down uncooperative clients. Not only does this interrupt your business’ cash flow and potentially destabilise your finances, it also wastes an incredible amount of your own time. Entrepreneurs need to focus on their business’ overall development and growth, and those who are forced to devote their time to resolving payment issues often find themselves struggling just to get by.

Using invoice financing or putting customers on financed payment plans allows business owners to side-step this problem. In both cases, the business receives most of the value of their sale up front. The financial institution then collects payment from the client on its own, and pays out the remaining revenue, less their fee, at the end. This doesn’t just ensure that businesses are paid in a timely and predictable manner, it also frees up the time that so many business owners lose to collecting late payments. Using these tools, businesses can budget more effectively, and focus on long term plans for growth and expansion.

Entrepreneurs rely on stable cash flow to help them establish their startups, and to make growth and further innovation possible. Alternative finance institutions like Fifo Capital allow them to stabilise their revenues, and to deal with unexpected financial issues quickly and without jeopardising their business’ stability. By learning to use these tools effectively, they become more resilient, and better able to compete with other startups as well as larger firms.