Businesses rely on sales to cover overhead and achieve growth. However, nearly one-third of new and small businesses fail due to external factors. In order to thrive and overcome obstacles on the road to success, businesses need to build capital reserves. When revenue is staggered, business owners need to find a solution that creates a financial situation to optimize cash flow and keep liabilities low.
Preserve Credit Ratings and Pay Down Liabilities
One key step in building capital reserves is to pay down existing liabilities and avoid taking on debt. In 2019, 70 percent of business owners had outstanding debt, and 32 percent owed more than $100,000. Debt impacts credit ratings, so to make finances more secure, businesses should make a concerted effort to consolidate debt and pay down existing liabilities. Keep in mind that liabilities do not just consist of debt from loans – staying on top of quarterly IRS taxes is also important to keep in good financial standing.
The Economy isn’t Predictable
Even the best economists cannot predict to the day when there will be booms and downturns. Business owners need to build capital reserves to take advantage of economic growth and to successfully weather economic dips. When the economy experiences downward pressure, businesses can lose sales, go through rounds of layoffs, or even file for bankruptcy. Lenders are hesitant to approve additional financing during economic downturns. With adequate capital reserves, businesses can survive economic instability and emerge intact. During a healthy economy, businesses can use their capital reserves to take advantage of growth opportunities without relying on traditional loans. Building up capital offers additional financial security for business owners.
Cash Flow is the Key
Building capital reserves starts with cash flow. Sales can be through the roof, but if most of your company’s revenue is tied up in unpaid receivables, building up capital will be an uphill battle. Invoices with payment windows of a month or more create a staggered cash flow where most of the revenue goes to overhead and the cost of filling current client orders, with little capital left over. To eliminate staggered revenue, businesses use accounts receivable financing. When your business uses accounts receivable financing, invoices are converted to cash and the funds are made available within 24 hours. This supercharges cash flow for your business so that you can build up capital reserves to cover overhead, reduce the need for traditional loans, lower liabilities, and plan for growth. Because accounts receivable financing is considered a transaction and not a loan, your business can preserve its credit ratings so you can secure larger financing later on down the road.
Building Capital Reserves Quickly
At Web Finance Direct, we provide accounts receivable financing nationwide to businesses in all industries. Our team will work to turn your unpaid client invoices to cash within 24 hours so you can boost your cash flow and build up capital reserves for long-term success. Contact Web Finance Direct today to get started.