Research shows that 20% of new small businesses fail, and the number one reason for failure is cash flow problems. But it’s not just small or new businesses that experience cash flow issues; larger and more established companies can also hit these types of snags. So, healthy cash flow is necessary for any business.
In this article, we’ll take a closer look at the importance of positive cash flow, discuss the benefits equipment financing can have on cash flow and explain how to get financing if you need it.
Understanding Cash Flow and Your Business
Cash flow describes the balance between expenditures and income. When your income is greater than your spending, your cash flow is positive. But if more money goes out to pay your bills than comes in through sales, your cash flow is negative.
Negative cash flow can result from a variety of factors. Examples include issues with your accounts payable or collections process, current industry and economic trends, and seasonal dips in business (which many agricultural businesses experience, among others).
Healthy cash flow allows your company to:
- Make payments promptly
- Keep suppliers, stakeholders, and employees happy
- Have cash in reserve for emergencies or to tide you over during slow periods
- Invest cash and other resources in opportunities for business growth and development, potentially creating new sources of income.
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Timing Matters for Cash Flow
Most companies examine their cash flow on a monthly basis. Especially for businesses that have a seasonal component, cash flow issues can result from bad timing rather than fundamental business problems.
Having a cash flow issue doesn’t mean that your company is spending more than usual. Even if spending remains under budget, you could experience cash flow problems if your income temporarily decreases. For example, if one large account falls behind on payments, it could be enough to send your cash flow into the red.
Equipment Financing Can Improve Your Cash Flow
Since the timing of expenses can have a huge effect on cash flow, large up-front purchases are a common cause of cash flow issues. However, large purchases may be unavoidable if your business needs new or updated equipment to keep up with demands, meet customer expectations, and keep cash flowing in. So, many small businesses face a difficult decision: put off critical equipment purchases and updates or face a cash flow crunch.
The simplest and best solution to this problem is commercial equipment financing. Instead of bearing the entire cost of equipment up front, equipment financing allows you to make smaller payments each month. This way, your company can acquire the equipment without creating a massive impact on your cash flow. You’ll also get some flexibility in terms of working capital, which will help when unforeseen expenses come up.
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Equipment Financing Example: $1 Buyout Lease
As an example, consider our popular $1 buyout lease option. The $1 buyout lease is similar to purchasing equipment with a loan. You’ll make a monthly payment, and at the end of the financing term, your company makes a final $1 payment that technically transfers ownership of the equipment. But for practical purposes, you’ll own the equipment throughout the life of the lease (it will appear on your balance sheet as a company asset), and you won’t have to worry about a large up-front payment upsetting the balance of your cash flow.
If you’re not sure which type of equipment financing is right for your business needs, just get in touch with our experts. We’ll talk with you, learn about your company, and come up with a financing strategy that makes sense for you.
Team Financial Group: Your Equipment Financing Partner
At Team Financial Group, we work with clients to find and customize the financing solutions that meet their unique needs. Our commercial equipment financing options can improve your business’ cash flow and overall financial health. To get fast, flexible financing today, fill out our simple online application and let us do the rest.
Desjardins, J. (2017, August 2). Here’s why small businesses fail. Business Insider. Retrieved from https://www.businessinsider.com/why-small-businesses-fail-infographic-2017-8
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.