Growth rarely comes easily. As small businesses expand, they need capital to hire new workers, pursue new projects, and pay off debts. Even companies with good long-term prospects can fold when capital problems create short-term headaches.
According to Investopedia, nearly half of small businesses that fail do so because they run out of funding. Owners of these businesses usually know exactly how much money they need to stay afloat, but when those owners fail to maintain the same attention to detail with their revenue, funding issues can evolve from theoretical to threatening overnight.
To keep your small business in the black as you grow, consider these three ways to ease your capital-related growing pains.
1. Accelerate your A/R
Massive enterprises can afford to wait 30, 60, or 90 days for their clients to pay the bills. Small businesses rarely have the same luxury. Even if plenty of clients owe you plenty of money, unfulfilled promises can’t keep your lights on.
Fortunately, you don’t have to wait months to get access to money you’ve already earned. Capital and technology company BAMFi advises businesses with looming capital problems to outsource A/R collection to third parties. Clients get to pay on their schedule, while you get the money you need as soon as you need it.
Unlike bank loans, which depend on your company’s creditworthiness, the viability of A/R outsourcing depends on the credit of your clients. This option makes sense for young businesses that need more time to establish bigger bank accounts. Eventually, you may want to reclaim your A/R collections, but not until you know you can comfortably fund all your projects and overhead in between payments from clients.
2. Get a micro loan from an SBA partner
The U.S. Small Business Administration exists to help young companies find their footing. While the SBA doesn’t issue loans directly, the agency works with financial institutions to make it easier for growing companies to access the capital they need.
Even if you don’t need a major infusion of capital, consider getting an SBA-backed micro loan through a local lender. These small loans of up to $50,000 (but frequently much less) don’t have the same strict requirements as standard business loans. You still need decent business credit to qualify — and a detailed plan for the money — but you don’t have to jump through the standard hoops to get one.
Micro loans work best in circumstances when your business needs to cover a few one-time overhead charges to get things moving. Don’t use this option as a Band-Aid for poor sales performance; rather, treat it as an investment in resources that could help your company earn new business for years to come. Take out a micro loan to get computers for your employees or to fund your first big inventory expansion, then rely on revenue to grow from there.
3. Find free alternatives to expensive business necessities
Software isn’t cheap, but your company doesn’t need a best-of-brand solution for every function. Keep overhead low by finding free or low-cost software options that can scale with your company. Even if you must pay full price for one or two industry-specific tools, you can save money in most areas with a little research.
Keep your marketing costs low with tools like MailChimp’s free plan, which allows you to send 10,000 emails every month to a list of up to 2,000 subscribers. The volume allowed by the free plan is plenty for young companies to grow. For the rest of your marketing needs, check out HubSpot’s free CRM, which offers the functionality you need to develop relationships with prospects and clients.
For in-house needs, you can find similar options for payroll, HR management, internal communications, customer service, web development, project management, and analytics. Hundreds of businesses have created useful tools to provide your company with everything you need to grow on a budget. Don’t spend more on something just because you saw an ad and need one of the product’s functions. Instead, do a little research to find a free or cheap option that can handle your immediate needs, even if you’ll eventually have to upgrade.
Small businesses go under for all sorts of reasons, but nothing guarantees failure as quickly as cash flow issues. You can’t fix your sales struggles, fill out your team’s roster, or respond to emerging trends in the market without sufficient capital. Rather than screen calls from bill collectors and hope your new clients pay ahead of schedule, use these tips to guarantee financial solvency and give your long-term goals a fighting chance.