Regardless of how successful your business is, cash flow challenges can happen. Intuit’s The State of Business Cash Flow report revealed that 69% of small business owners have had sleepless nights worrying about cash flow issues. Let’s take the rest of this space to examine the five most common causes of cash flow issues and how an MCA can help overcome them.
Rapid Growth
A business can grow too fast for its own good. Just ask any business owner who has experienced the “Oprah Effect.” From the late eighties to 2011, Oprah Winfrey routinely featured small businesses and their products on her number one-rated TV talk show with 48 million viewers.
These featured companies typically experienced a massive surge in demand for their products immediately after appearing on the show. As a result, many of these businesses struggled mightily to meet the sudden rise in demand — and some went broke when the cost of fulfilling orders outpaced their working capital (cash on hand).
Your business could encounter a similar challenge after a successful marketing campaign or a sudden increase in demand for your product. However, a merchant cash advance can help you effectively address this situation by quickly supplying you with a lump sum for buying inventory, hiring staff, and paying other related costs. In exchange, you agree to repay the MCA with future credit card sales.
Unexpected Expenses
Substantial out-of-budget expenses tend to show up when you least expect them. Although there are many types of unexpected costs, four of the most common are as follows.
- Taxes: An accounting error or an IRS audit can deliver a much higher tax expense than you anticipated.
- Sudden supply cost increase: A labor strike, supply chain issues, natural disasters, war, or currency changes can cause a substantial leap in the cost of goods sold.
- Equipment breakdown: For example, a used boxed delivery truck can cost $30,000 to $40,000
- Overtime Pay: Flu season, a sudden surge in business, or rough weather can lead to more overtime expenses from temporary staff shortages.
A merchant cash advance can provide the advantage of paying an unexpected expense without disrupting your operating budget. Within a short period, an MCA provider can deposit a substantial cash amount into your business account. Also, since acceptance depends on business sales instead of your credit, qualifying for an MCA is easier for small businesses than traditional business financing.
Drop in Sales
Slow sales can quickly drain your business’s working capital. Not only do you have less working capital to pay for supplies and equipment. You also have the added cost of maintaining unsold inventory. When these factors make your cash flow fall behind the cost of doing business, slow sales can become a severe cash flow management issue.
Up and down sales income is exceptionally challenging for businesses in seasonal industries. To deal with this challenge, you can use a merchant cash advance as a vital business financing tool for helping to smooth out business operations in slow sales periods. You can use an MCA to cover payroll, inventory, and other expenses. Then, during a more prosperous period, you can use the credit or debit card sales to repay the MCA.
Late-Paying Customers
Slow-paying customers can be annoying — and they can seriously hinder the process of converting your accounts receivable into cash. If you have several customers in this category simultaneously, it can deplete your working capital for operations, bill paying, and buying supplies.
Along with providing the money to help you compensate for slow-paying customers, an MCA doesn’t bog down your business with a strict repayment schedule. For example, the Zinch Flex payment plan only withdraws a percentage of credit card sales directly from the credit card processor. So, your payment matches your earning power, not the whims of late-paying customers.
Inaccurate Cash Flow Forecasting
One of the primary reasons businesses run out of cash is inaccurate cash flow forecasting. If you launch an aggressive growth business strategy, you could encounter major cashflow problems by underestimating the amount of working capital it takes to support each growth phase.
Nobody is perfect, and circumstances can throw your cash flow management off. This reality is why having a good working relationship with an MCA provider like Zinch is wise. With a brief qualifying process based on credit card sales, you can overcome cash flow forecasting mistakes with the funds from an MCA.
Your Hedge Against Cash Flow Problems
Running out of cash is a prevalent risk in cash flow management, especially for businesses operating under thin profit margins. Fortunately, a Zinch merchant cash advance can help prevent a cash flow problem from hindering your business’s success. Contact us at (714)-500-6622 to explore your choices. You could qualify for up to $250,000 in just 24 hours.
