According to a small business credit survey published in 2020 by a group of Federal Reserve Banks, 66 percent of businesses faced financial challenges in 2019, but 57 percent did not apply for financing due to high interest rates, unfavorable repayment terms, loan caps that were too small, or they obtained sufficient funds from other sources.
With only nine percent of small businesses seeking and receiving the funds they need, there is clearly a gap in access to funds. Many businesses are seeking other ways to generate and free up cash for operating costs.
Though businesses around the country tightened their belts and focused on operating through 2020 due to the global pandemic, some industries thrived, and many businesses utilized adaptive strategies to align with a different sort of demand: the stockpiling of essentials. Businesses are looking for ways to move beyond those stressful times and to reenter a more dynamic market. It’s no easy task if sales have not yet recovered.
When preparing for growth, keep in mind that growth itself will consume resources at a precipitous rate. Purchasing production equipment, hiring and training teams and onboarding new clients are all time and money intensive activities. Prefinancing your growth can reduce financial stress and give you time to reap the rewards of growth. Here are some strategies you can use in your small business today to fund your goals.
Focus on Cash
Here are some great ways to generate cash for your small business:
- Don’t bypass opportunities just because they aren’t your primary product or service. You can increase cash by capturing all the opportunities you have for sales. When times are not tough, it is smart to focus not just on your basic job but to say “yes” to other jobs and to stretch a bit to find suppliers, subcontractors and team members who can bring on new skills and deliverables.
- Look for alternate channels for products and services. Restaurants have found a survival strategy in purchasing and delivery app based services and curbside pickup. Retailers from farming to apparel and on to grocery have found success in these strategies as well. Maybe you can too!
- Increase prices. Many products are “price elastic,” meaning that buyers will purchase even as the price fluctuates. Think about gasoline. The drive to work and groceries doesn’t change, and people have relatively fixed routes. Coffee and other consumables may be the same. For memberships, contracts and other brand based value propositions, a narrative or selling process helps you increase credibility and belief during the customer acquisition process.
- Repeat sales. You’ve heard the slogan, “the hardest sale to make is the first one.” By reengaging existing customers, even through discounting, bundling or couponing, though this goes counter to the price increase option, increased sales volume with less effort on the front end nets valuable cash to keep your business moving.
- Connect with your customer’s friends through referrals. When was the last time one of your customers told a friend or colleague about what you do? Referrals are one of the strongest sources of leads, because people believe others more than they believe ads. Reviews, personal referrals and testimonials are all ways to increase inbound referrals. Sweeten the deal by creating affiliate or referral value to your committed customers.
- Collect all receivables. If you regularly offer extended repayment options, tightening the timeline is reasonable. More businesses are focused on just-in-time delivery over holding stock, so smaller, faster moving product should require more immediate payment. Work with your retailers or partners to find ways to accelerate cash flow for you and for them.
- Reduce Cost. Explore ways to save. Bump down the heat and spread employee hours over longer periods or tighten up team effort to peak times of day for client fulfillment. Can stocking before store opening create more efficient and cost effective work? Maybe changing store hours or closing one day per week can
Get Funding
When traditional funding sources are not available as in other normal times, the following options can generate much-needed funds for your small business:
- SBA-backed Loans. The Small Business Administration provides support for local and private lenders by backing a portion of your loan, reducing the risk to lenders, and thereby, reducing interest rates. A loan broker can help you prepare your application for the greatest likelihood of success.
- Seek grants. Many state and local economic development initiatives have funds or resources for small business. In recent times, many corporations have provided grants in the form of discounted, free or matching services as well as cash for small businesses. Search for and talk with leaders in your network and supply chain to see what’s available.
- Friends and family. Tapping into your relationships can be a fraught endeavor. Taking money that you can’t return or that may take years to repay could set you up for stress and conflict. Treat it like any business deal, and be forthright about the business situation, risks and possibilities. Your connections may not have the skills of a loan broker to evaluate and identify the available options, so hiring a financial professional for a consult may also be in order.
- Work with a loan broker to identify opportunities to consolidate old loans and to access cash. Many businesses are grinding along utilizing a company credit card for all business expense when there are other options with better rates to meet their requirements.
By developing a multi-pronged approach, you keep the door open to opportunity. A flexible, adaptive mindset is one of the most valuable tools you have when faced with a crisis. Your options may include features of our list, but you might also find additional ways to remain nimble. If so, send us your successes! We would love to feature them in a future article.
Would you like to talk with us about your business to identify pathways to greater revenue? Visit our website or give us a call today.