It is often said that cash is king. For small businesses, having a healthy cash flow can be the difference between success and failure. The success of small businesses is critical to the American economy as this sector drives production, employment and economic growth (https://www.jpmorganchase.com/content/dam/jpmorganchase/en/legacy/corporate/institute/document/jpmc-institute-small-business-report.pdf). In fact, US small businesses employed 58.9 million people which is 47.5% of the workforce (https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf). The continued success of the small business sector is not only important, it’s absolutely crucial to a healthy economy.
One of the most important components of success is for small business owners to have cash on hand to invest in their business or to cover expenses in case of an emergency. Here are some of the reasons cash is so vital to building a strong and healthy business.
Economic downturns can be detrimental to a company if it’s not prepared. A recession can affect a company’s revenue stream and may even force them to downsize. In fact, some companies are even forced to declare bankruptcy. Having cash on hand helps small businesses weather an economic storm.
Investment in Infrastructure
In order to grow, small businesses may have to invest in real estate, factories, or technology. They may need equipment, supplies, or a bigger work force. Having cash in reserve allows businesses to make critical decisions that will help them grow.
Positive Cash Flow
A positive, healthy cash flow is one of the most important measures of success. Even profitable businesses can fail if their cash flow is not managed properly. Having a positive cash flow is critical to keeping up with monthly expenses and generally running a business efficiently. Businesses need it to pay their vendors, buy supplies and compensate their employees on time.
The resilience of a business depends largely on how it manages its liquidity. Having cash provides the security small businesses need when faced with a cash crunch. One way that a business owner can infuse their company with cash is through accounts receivable financing, also known as factoring (https://www.expocredit.com/blog_articles/consider-factoring/). Financial partners like ExpoCredit (www.expocredit.com) provide companies with access to capital quickly, right when they need it. Whether a business is seeking to invest in their growth, or simply survive a temporary cash flow crunch, securing the right financing is the key to success.