Loans don’t just add money into your business account; they are also a vote of confidence, especially if you’ve been granted one by a reputable financial institution. If you’re approved for a loan for a significant amount and with generous payment terms, it’s usually a signal that the lender deems you trustworthy and believes you can achieve your business goals.
However, despite their positive connotations and growth-boosting potential, business loans still do present a risk to small mom-and-pop operations, particularly those with limited capital or weak cash flow. Choosing a safer business loan option like Maya Flexi Loan could mitigate the risk but, in all cases, it’s still important to handle any borrowed amount with utmost care.
Here are some critical cash flow tips you need to look into before you take out a large loan for your small family business:
Choose a Financial Institution with Favorable Interest Rates and Transfer Fees
Lenders with business-friendly rates and transfer fees make it much easier to develop a good cash reserve, since they will be taking a smaller cut out of every financial move you make. With a better cash reserve, you’ll then be better placed to weather contingencies that would otherwise require you to take out even more loans.
Automate Payments to Suppliers and Employees
Manual payroll processing can take a lot of time and is highly prone to errors. Fortunately, payments made at regular intervals (i.e., employee salaries, supplier payments, insurance premiums, etc.) can easily be automated through most modern digital banking account dashboards. Some digital banks even offer flexible bulk payment solutions specifically designed for these financial obligations.
Adopting these systems can provide you with several benefits. First, you can be sure that the payments made are always accurate because there’s virtually no room for costly input errors. Second, you get a much more accurate idea of how much cash you could really spend—you’re not spending cash that should be going to someone else. Third, adopting automated payments lets you focus on critical value-adding activities that improve your cash position even further. Lastly, paying your obligations on time can help your reputation, which can be especially important for a family business.
Send Prompt Invoices to Customers
Too many uncollected accounts receivable will endanger your business’s loan repayments, because you will have provided goods and services for essentially nothing in return. While it’s true that offering credit is a tried-and-tested way for family businesses to develop a customer base, you still want to make sure you’re getting paid on time.
Implementing more automated online and offline invoicing systems ensures that customers are able to pay immediately or at the very least understand your payment terms. Timely billing should also mean faster payments, boosting your cash flow, and making it easier to meet your loan obligations.
Keep Investing in Your Marketing Activities
A consistent marketing strategy is essential for attracting new customers and retaining existing ones. Unfortunately, many mom-and-pop business owners try to cut back in this area when they’re faced with a cash crunch or impending loan obligations. This can prove to be a costlier error, as a sustainable sales stream and cash flow all stem from solid marketing.
Sometimes, however, some marketing cuts cannot be helped. In this case, focus on low-budget, high-impact campaigns like search engine optimization or social media marketing to keep drawing customers while still keeping your budget under control.
Renegotiate Your Other Debts
If your business has pre-existing debts, consider renegotiating their terms to give yourself some financial breathing room. Even simple requests like extending the repayment period can free up funds for daily operations and more pressing obligations.
Be Smart with Your Inventory
Mismanaged inventory is a leading cause of poor cash flow for smaller family businesses. If you can afford it, consider updating your inventory management system to better keep up with ongoing sales trends and to avoid overstocks. Implement controls to increase accountability, avoid pilferage and damage, and consider selling off any excess stock to create more room for bestsellers and vital production inputs.
Invest in More Efficient Production Processes
Adding efficiency improvements can be contentious in family businesses, particularly if some members are set in their ways. But at the end of the day, enhancing production efficiency not only improves product quality, but also positively impacts cash flow. If key family stakeholders can be convinced to invest in technologies and processes that streamline production, reduce waste, and lower operational costs, your shared enterprise will be on its way to increased profitability and better financial health.
Hire a Professional Accountant
Unless you’re an accountant yourself, you need to hire a professional accountant to provide your business with complete financial visibility. Proper accounting and bookkeeping will provide a realistic picture of your finances, allowing you to make informed decisions that will positively impact your cash flow.
Effectively Managing Your Borrowed Capital
Given the risk posed by borrowed funds, it’s good to have a defined set of strategies to keep your cash inflows and outflows properly controlled. More importantly, managing your borrowed capital effectively will also help your family business and its wider dynasty build the trust necessary to re-engage with lenders and investors. In any case, developing a well-honed instinct for handling your funds will help push your family enterprise to a greater level of success.
