How to Tell if It’s Time to See a Financial Advisor for My Business

An American College survey of business owners found that 60 percent of respondents have not met with a financial advisor, and few had developed contingency plans for future events that could affect their businesses. A financial advisor has the expertise and experience to help you maximize the effectiveness of your capital investment in your business, and meeting with one can be quite beneficial.

While it’s a good idea to use a financial advisor from the beginning, you might have put it off. Here are five ways to tell that now is the time to see a business financial advisor:

Cash flow problem:

A financial advisor can help when you suddenly find your business facing an unexpected cash crunch. The advisor will help you work out your options for plugging the cash gap in the short run and preventing it in the future. One alternative is to acquire a working capital loan, such as the ones we provide at IOU Financial. Short-term loans provide the liquidity you need to continue operations, and the cost is quite modest compared to the consequences of not paying your bills on time.

Buildup of owner’s equity:

Good news can also trigger the need for a business advisor. One happy scenario is that your business is doing better than expected and your owner’s equity account is growing must larger than anticipated. You’ll want to speak to an advisor to see how to put that extra cash to work in a tax-friendly way. Sure, you could simply withdraw it, but that will create a personal tax liability. An advisor can help you look at different alternatives to grow your business, such as extending your geographical reach or expanding/enriching your product mix. You might want to hire additional employees or move to a better location – these alternatives require careful planning that a business advisor can provide.

Sudden opportunity:

Sometimes, opportunity knocks and you’re not quite ready. For example, a key competitor might approach you with an offer to let you buy it out. Or a sudden deal becomes available that would let you significantly increase your inventory at a highly-discounted cost. A financial advisor can help you work out how to take advantage of the opportunity in the most efficient way. Once again, a short-term loan might be the answer. IOU Financial can lend you up to $300,000 to grow your business at an affordable cost. Opportunities don’t come along that often. Be prepared to seize them, and to do so in the most efficient manner.

Thinking about retirement:

A business financial advisor should be brought in well before your retirement date to help work out how to sell the business and how to best use the proceeds of the sale. For example, it would be nice to minimize the tax impact of a big payout. A financial advisor can show you alternatives like trusts, charitable contributions and tax-sheltered accounts. It might require you to restructure your company before you sell it in order to reap the best after-tax benefit from its sale.

You’re feeling overwhelmed:

Maybe you know your business more than you understand finance. As your company grows, you might find yourself paralyzed by financial ignorance. Hire a business financial advisor to break the logjam and get you moving in a positive direction. Don’t mismanage your success. Don’t be afraid to get help before your sweet business turns sour.

Tips for Creating Next Year’s Budget

The new year brings opportunities to make your small business more successful. There’s no better place to start than with your annual budget. It encapsulates your revenue and expense expectations in a single spreadsheet. Here are some handy tips for creating your new budget:

Analyze last year’s budget:

How closely did your estimates match actual experience? You probably under- or over-estimated at least some of your cash flows. Learn from your mistakes to set your numbers more realistically, wishful thinking aside. If your data shows a trend throughout the year, incorporate it into the new budget. Some numbers are harder to estimate – if you have a lot of these, try doing a best-, worst- and average-case version of the budget.

Break it up:

You should break down your annual numbers into monthly ones. This gives you the ability to incorporate seasonal differences that more closely match your cash flows. It also lets you apply actuals and revise numbers based on experience.

Budget in a cash cushion:

A good budget will incorporate a cash cushion to help you survive sudden crunches. Near-cash securities such as T-Bills are a fine place to stash the extra cash. Even if it’s an unusual year that doesn’t see unpleasant surprises, extra cash will certainly come in handy sooner or later.

Seek help:

Do you find setting up and working a budget confusing? Don’t fumble through it. There are many resources available to you to assist. We recommend our Business Budget Smart Sheet, which will help you analyze your spending patterns, streamline areas of overspending, gauge the cash flow impact of fixed and variable costs, and much more. If you need more help, speak with your accountant or tax specialist.

Make adjustments:

Are you selling more units each month and losing money on each sale? Bite the bullet and raise your prices (and slash your expenses). Calculate your new revenues based on higher prices and incorporate into your budget. Do the same when you reduce expenses. For example, you might find it cheaper to subcontract out some of the work that you currently do in-house. Your budget should reflect your best ideas for making a profit.

Create recession contingency budget:

At the time of writing, the U.S. is enjoying a growing economy. What would happen to your business if we suddenly fell into a recession? It will happen sooner or later, and you’d best be prepared by creating a recession budget as a contingency. The recession budget is based on conserving cash in the face of lower demand for your product or service.

Remember, budgets are planning tools, not straightjackets. Remain flexible, and you can always turn to IOU Financial if you find yourself short of cash despite your best planning.

 

3 Things you can do NOW to Avoid Tax Headaches Next Year

As the days are winding down at the end of the year, it may be tempting to relax and start planning for time off during the holidays. However, business owners should know by now that there is rarely time to relax when running their business. The end of the year is actually the perfect time to get busy and plan now to avoid tax headaches next year. We recommend three things to consider doing now to ease the burden come next April.

Incorporate Ways to Boost Accounting Efficiency

For most business owners, the most difficult part of doing taxes is preparing for them. Gathering receipts, calculating the cost of doing business and counting your profits takes up a lot of time. Losing or forgetting important documents that represent spending or profits can lead to mistakes on taxes and a big headache for you.

How can you streamline the process of preparing for taxes? By reconsidering how you conduct your administrative services and incorporating new ways to boost efficiency. For example, instead of writing paper checks and balancing your checkbook, switch to sending electronic checks straight from your bank account. Not only will this save you the price of a stamp, but it will also help you track all of your spending via your bank account in one place.

Purchasing an accounting program, such as Quickbooks, is another advantageous strategy that allows you to regularly update all of your financial information, spending and earning, in order to generate reports when filing your taxes. 

Automate Your Payroll System

How do you pay your employees? If you do so manually, you are not only wasting valuable time, but you may make mistakes that can prove to be troublesome for you and your staff. To increase productivity and eliminate errors, invest in an automated payroll system which pays your employees through a computerized system.

A special payroll system will calculate wages based on employee agreements (hourly pay or salary) and generate paychecks as well arranging direct deposits.

The first tax benefit of an automated payroll system is that it is a safe place to store payroll records that doesn’t take up any space. Remember that the Internal Revenue Service (IRS) dictates that employment tax records must be kept for at least four years!

The second benefit of this system is that it makes it easy to accurately withhold necessary deductions, such as state income, social security and Medicare taxes. Utilizing the system’s hard-coded tax rates, you eliminate payroll tax errors come tax time.

Finally, the payroll system syncs with your accounting system to provide accurate reports whenever you need them.

Save for Business Taxes

The end of the year is the right time to approximate how much small business taxes you may be liable for. Print or create a profit and loss statement to reflect your financial situation; once you have this information, you can count how much taxes you may be responsible for.

This will help avoid unpleasant surprises come tax time, and will help you save the required amount to pay off the taxes. Remember that the IRS also offers convenient payment plans if you cannot pay the full amount by the due date.

If you need help affording a payroll and/ or accounting system or require financial assistance to pay off your business taxes, turn to IOU Financial. Our hassle-free small business loans of up to $300,000 can be in your bank account in under 48 hours! Contact us today!

3 Ways to Strengthen Your Business Credit Score

Similar to a high FICO score, it is important to have a strong business credit score. In order to qualify for loans or get approved for trade credit, you must prove that your company is a safe bet for investors, banks and private lenders.

A low business credit score signifies that your business carries a significant amount of risk to lend funds to, which will result in either a denial of a loan or unfavorable rates and terms based on the level of risk. Additionally, you can qualify for lower insurance rates with a higher credit score.

How is Your Business Credit Score Calculated?

Your business score is calculated by credit-reporting agencies that utilize an algorithm based on various factors. Although your score can fluctuate slightly depending on the agency and its scoring model, similar factors are taken into account when determining your score.

Your business’ creditworthiness is rated on a scale from 0 to 100 based on the accounts in your company’s name. It is important to note, however, that business lenders may consider your personal FICO scores in their decision-making process.

How to Strengthen Your Business Credit Score

In order to improve your business’ creditworthiness, you must strengthen your business credit score. There are three effective ways to do so, which include:

Monitor Your Credit Report

The first and most effective way of strengthening your credit score is regularly monitoring your credit report. No system is created perfectly, and errors are common between lenders and credit reporting agencies.

If you don’t monitor your credit report, you will not be aware of discrepancies that can significantly plummet your business credit score. Get in the habit of requesting annual credit reports from the three credit reporting agencies, Experian, TransUnion and Equifax, which will alert you to issues that you must address to improve your score.

Pay Bills on Time

It is no easy task to manage your personal and business expenses, which is why you may not have enough funds every month to pay all of your bills on time. There are sources that may advise you to lag behind on payments, later agreeing with collection agencies on repaying lower amounts just to settle your debts.

While this may benefit you in the short term, not paying your bills on time can significantly affect your business credit score. Not only will you be obligated to pay a late fee and possible interest on the outstanding balance, a payment that is over 30 days late will be reported to credit agencies, possibly lowering your business credit scores. One source states that “payment history information typically accounts for nearly 35 percent of your credit score, making it one of the single most important factors in calculating your score.“

Paying bills on time will boost your credit score; in fact, paying bills ahead of the due date will play an even bigger role in strengthening your score!

Raise Your Credit Limit

Your business credit score is calculated by factoring in your credit utilization ratio, which considers available credit in relation to debt. It is advisable to keep the ratio under 30% to have a high credit score.

Although you may not be able to limit the amount of debt your company has, you can improve the credit utilization ratio by increasing your credit limit. While many credit cards will do so automatically after a certain period of time, you can make proactive efforts by contacting lenders and requesting an increase in your credit limit to better your business credit score.

Increase your credit limit in order to raise your business credit score by securing a small business loan from IOU Financial! Contact us to inquire about a small business loan of up to $300,000 in just 24-48 hours!

Small Business Tips: Increasing Your Financial Literacy

Having a great idea and running with it is not enough to operate a successful business. A business owner must wear many hats when operating their company, but managing and understanding their finances doesn’t always come easily.

Relying on a business manager or an accountant is a beneficial way to verify that you are conducting your finances by the book, but many small business owners do not have the budgets to afford these specialists. In fact, “40 percent of small business owners say they are financially illiterate – yet 81 percent handle their business’ finances themselves,” according to an Intuit study as reported by one source.

Whether you will hire out or want to tackle your business finances yourself, it is necessary to have a basic understanding of your financial situation if you truly want to be in charge of your business. With a little effort, it is not difficult to increase your financial literacy with these tips:

Know What is Required to Run a Business

Bloomberg reported that 80 percent of businesses fail in the first 18 months, states a source. Much of that failure is due to the fact that business owners are not skilled in properly handling their finances. There is a lot of financial planning and management required to operate a company, such as “budget, accounting and taxes, calculating price points, and projecting revenues and success rates well into the future to ensure continued success.”

Some owners get into trouble because they don’t plan ahead, and don’t save for unexpected expenses, such as hiring additional staff,  surprise incidents that may arise, or the simple costs of doing business they may not have been aware of. Others don’t know payroll and tax rules, and receive heavy fines for paying late or not at all.

As a small business owner, it is imperative to understand all of the financial requirements to run a business!

If Borrowing Money, Do Your Research

It can be tempting to borrow money from a bank or an investor to start or grow your business, and this can help you get off the ground. Before you jump into the world of lenders,  take time to evaluate your own expenses and savings and calculate what you can afford, or if it would be possible to provide your own seed capital, a process called “bootstrapping.”

Although using your own funds can involve some risk, paying high interest rates can be harmful in the long run if your cashflow can’t afford it. If you do choose to borrow, make sure to compare the terms and interest rates that lenders and investors are offering, as well as research their credibility and history.

Learn Proper Financial Planning

Financial planning is essential to secure your company’s long-lasting success. Startups require substantial seed capital to cover expenses for the first few years. Few startups are profitable right away, as all the money is typically reinvested in business growth for hiring staff, marketing and inventory.

You must have a comprehensive understanding of your monthly expenses and profit. Small business owners who hire accountants typically cannot understand complicated accounting reports, so it would be advantageous to track expenses, profits and bank account balances themselves to stay on track, according to personal finance expert, Andrea Travillian. Truly understanding your monthly expenses will help you save for them rather than spend your profits as they come in, leaving you in a lurch when the time to pay bills comes around.

Save a portion of your monthly profits to pay for taxes; business owners who do not get in the habit of doing so can be pushed to declare bankruptcy when a significant amount is due from the IRS that they did not budget for.

If you need financial assistance to take a course to improve your financial literacy, hire a corporate accountant or pay business taxes, IOU Financial is ready to help! We provide small business loans of up to $300,000 in 24-48 hours!

What to Look for in a Financial Advisor

Considering that Americans have accumulated more debt now than ever before, working with a financial advisor can be a great decision in planning financial expenses. A financial advisor can help with putting together a budget to avoid overspending, choosing the right investment strategy or prepare for taxes that come with running a small family business.

There’s no reason to stay in the dark when it comes to money and getting the best results requires the right financial advisor. But how do you find the right financial advisor?

Do They Understand Your Needs?

There is no one-size-fits-all approach to finances. There are solid strategies that will benefit most people – for example, paying down debt is almost always a good choice. But every individual has their own financial goals and needs. A 45-year-old father of two will need very different financial advice than a 23-year-old single professional who just finished school.

Look for a financial advisor who demonstrates an understanding of your situation. That way, they can offer advice tailored to you.

Does Their Education, Expertise and Certifications Align with Your Own Goals?

Although financial advisors can cover a broad range of topics, if you’re looking for a specific type of financial advice, then you’ll want to look for an advisor whose qualifications match that area.

Maybe you’re trying to pay off student loan debt, getting your first mortgage or applying for a small business loan. These are all detail-heavy processes and you’ll get the best advice from a financial advisor who specializes in these processes. Evaluate the certifications a potential advisor has to see if they’re the right choice for your current and future goals.

Does Their Compensation Plan Incentivize Your Success?

You obviously pay for their service, but you might not be the only one paying a financial advisor.

There are many firms that offer their advisors product-based incentives; those advisors make a commission for selling the firm’s products to customers. Although this doesn’t necessarily make them bad financial advisors, it can create a conflict of interest and alter the advice they might suggest to you.

Don’t be afraid to ask a financial advisor about their compensation plan. Be careful with those that make money from sales; you’ll might end up wondering whether they’re recommending a product because it’s right for you or because it will make them money.

Can They Teach You?

Financial literacy is a gigantic problem for most Americans and very little is being done to solve the problem. What’s more troublesome is that the average person has more financial responsibilities than ever before. There are all kinds of ways borrow money including banks, credit unions and online lenders. It makes it easier than ever to accrue debt. Retirement no longer comes from pensions, Social Security may not be around in the future and people live longer than ever.

That makes it even more important to save money consistently and avoid debt. A financial advisor who can educate you on personal or business finances will help you save more and borrow less.

Do They Truly Seem to Care?

You don’t want your meetings with a financial advisor to feel like college lectures, but unfortunately, they often do. The advisor sees you as one of many clients, your money is just numbers added to a statement and they’ll simply go through the motions with you.

You might learn something from that type of advisor, but you’ll certainly have better results with an advisor who engages with you. Look for a financial advisor who inquiries about your current situation, your financial history, your goals and all the other important details about your life. When an advisor gets to know you as a human being, they can help you make the best financial decisions because they know your wants and needs in life.

There are plenty of excellent financial advisors out there and working with one could be the best decision you make to take control of your finances and improve your future. Be patient as you look for a financial advisor and keep those five questions in mind to ensure that the person you choose is the right fit and has your best interests at heart.

Guest Post: About the Author

Heather Lomax is a contributing writer from Financial Licensing Advisors. She regularly contributes articles to a variety of investment and finance blogs.

How to Protect Your Business from Fraud

Companies with fewer than 100 employees annually lose a median of $155,000 because of fraud. It turns out that small businesses are more exposed to fraud than are their larger kin. Credit card abuse is a major weak spot, but by no means the only one.

Below are eight ways to protect your small business from fraud and cybercrime:

Check your employees:

Hiring honest people is essential if you want to reduce fraud, especially for staff members that handle cash or high-value inventory, have spending authority, or can access private financial/customer data. To stay compliant with legal privacy rules, consider using a private screening firm. Always verify resumes and do web searches on job candidates.

Protect your financial accounts:

Credit cards and bank accounts are frequent targets of fraud. When starting your own business, separate personal cards and accounts from business ones – this makes it a little harder for fraudsters to steal all your money. It also helps you fill out your tax returns accurately. Secure your credit cards, and don’t hand them over to employees unless you know them well. Go paperless and make payments via online bill pay. Get a secure mailbox for receiving and sending bills. Finally, review your online banking activity daily.

Protect your computers:

Invest in software that makes you more secure: anti-malware, anti-virus and spyware protection programs. Backup your data onto the cloud to guard against cyber blackmail, and automate your backups. Explore server virtualization, which eases disaster recovery. Encrypt all your data and use solid passwords that you keep secure.

Consider a banking-only computer:

By designating one computer exclusively for all your online banking, you avoid threats from email, social media and web-surfing, at least on this one computer. Although mobile banking seems nifty, best to avoid it if you are concerned about fraud.

Get serious about passwords:

Having a password policy makes a lot of sense, even though it takes some extra work. First, have all business passwords expire every 60 to 90 days. This lowers the risk of password theft. Set password standards, including length and use of special characters. Use unique passwords for different systems and accounts.

Train your staff:

Make your employees your allies in the fight against fraud. Invest in regular training sessions that teach your staff to detect and prevent security threats that can lead to fraud. It’s important to train employees to be alert to phishing fraud, in which phony emails look like they came from management.

Spending authority:

If you delegate check-writing or online payment authority, divide that authority between two, unrelated employees. This helps to prevent internal fraud in areas such as purchasing. Set spending limits that demand your approval for sufficiently large expenditures. It’s a good idea to stay away from paper checks altogether, since they are inherently less safe.

Fraud insurance:

Despite your best efforts, fraud and cybercrime can occur. You can protect yourself by purchasing an insurance policy covering losses from fraud and crime. Use credit cards with built-in insurance that provides $0 exposure to fraud.

One way IOU Financial customers enjoy increased security is through daily or weekly automatic repayment from your checking account. These payments are much smaller than would be a monthly repayment, which means any irregularities would be immediately apparent. Interbank transfers are more secure than are paper-based transactions, which is why you should move exclusively to online banking.

Running your business takes a lot of work. Recognize areas that you may have overlooked while managing your day-to-day operations with our 7 Secrets to Small Business Success!

 

How to Build and Keep Your Business’ Good Credit Score

More than likely, you depended on your personal credit when you launched your small business. However, a growing business must tap higher amounts of capital, and a good business credit score will prove helpful in this regard.

Business Credit Score

Your business credit, also known as trade or commercial credit, is based on the likelihood that your enterprise will repay its debts. Like personal scores, your business credit score is calculated using several inputs, including your payment history, bankruptcies, collections and your credit utilization ratio – your outstanding credit balance divided by your available credit. In addition, your business credit score might include considerations about your company’s size and your industry. Keep in mind that your business credit report can be requested without your permission, and you’ll have to pay to get a copy of your business credit report.

Creating a Good Credit Score

It makes sense to establish your business credit score as soon as possible, because you don’t want to look desperate if you suddenly need credit. You’ll find many lenders require a company to operate for two years, although an IOU Financial loan needs only one year of history. If you’re operating, you should be building your business score. Here’s how to do it:

Obtain Federal Employer Identification Number:

This will help separate your business from your personal finances. You should also get a business checking account and a business phone number. For optimal protection of your personal assets, consider establishing your business as a limited liability company or a corporation.

Get a DUNS number:

Dun & Bradstreet is a corporate credit reporting agency that issues a universal identification number, the DUNS number, that is recognized around the globe. A DUNS number opens doors to some corporate and government contracts, as well as loans from the Small Business Administration. More to the point, D&B will create and track your business credit profile when you get a DUNS number, leading to an accurate credit score.

Establish credit accounts:

Obtain one or more business credit/debit/charge cards, including a gas card if your business has vehicles. Also, open credit accounts with your suppliers, including office supply stores.

Use your credit responsibly:

Pay your bills on time, and even ahead of schedule. Nothing helps your credit score like an unblemished repayment record. If money is tight, you can get a commercial loan and pay off your other debts. One of the biggest challenges a small business faces is making the monthly loan payment. IOU Financial has a better idea – daily or weekly automatic payments that you’ll barely notice.

Don’t be delinquent, renegotiate:

If you’re having trouble paying your credit accounts, don’t miss payments. Instead, reach out to your suppliers for looser terms. Many will agree rather than risk default.

Mind your credit utilization ratio:

A ratio below 20 percent is great. It means that you have the means to handle a sudden need for money without scrambling to obtain additional credit. It also indicates you are operating your business well. Make it a priority: Calculate your CRU and get it down below 20 percent.

Check your credit report:

Get an updated business credit report every three months and check for mistakes. One derogatory mistake can sink you credit score, so clean them up as soon as you identify them.

It’s wonderful to have a good credit score, but bear in mind that IOU Financial doesn’t require it to lend you money. If you’ve owned and operated your own business for at least a year, clear $100,000 in annual revenue, average a daily bank balance of at least $3,000, and make at least 10 bank deposits a month (for retail/e-tail companies), IOU Financial will do everything possible to approve your loan request, even if your credit score is less than good.

How Businesses Effectively Manage Debt

Cash is the fuel that allows your business to operate. With it, you can buy inventory or raw materials, and wait for sluggish receivables to be paid. You can invest in expansion or other opportunities to grow your business, and have a cushion to pay bills during tough times. Debt is a time-honored way to get cash when you don’t have enough. When managed well, debt can be a significant boost to your business, but poorly managed debt can lead you down the road to Chapter 11.

Managing debt wisely is the mark of a well-run business. Here are some tips for owners to effectively use debt:

Be interest-rate aware:

Are you stuck with a high-interest small business loan that demands a mountainous monthly payment? If so, you should consider refinancing your loan at a lower interest rate. Your original loan might have been based on your credit rating, and if that is less than perfect, you can do better by choosing a lender that rates you more on cash flow, such as IOU Financial. Also, when you borrow from IOU Financial, you make daily payments, which abolishes the dreaded monthly repayment.

Work with suppliers:

Your suppliers want you to succeed, because they sell to you. Use this attitude to negotiate favorable credit terms with them, such as bulk discounts, and extended payment terms. Let your suppliers know that their flexibility will result in your loyalty. Another strategy is to join a buying consortium composed of several nearby small businesses, thereby increasing the size of your orders and qualifying for greater bulk discounts and better credit terms.

Milk extra space:

Are you paying a mortgage on more space than you need? You might not want to move to smaller quarters due to the expense and the risk always attendant upon a new location. Instead, consider subleasing your extra space, say for companies that need extra storage space or a small office. This can have the effect of reducing the net cost of your mortgage debt.

Don’t be fooled by alternative financing:

Some businesses turn to expedients like factoring invoices or wholesaling inventory rather than taking out a loan. However, many don’t understand the true costs of these tactics. For example, when you factor invoices, you lock in a lower profit margin, since you will be getting only 85 to 90 cents on the dollar, a much higher price than the interest on a good loan. Wholesaling inventory can result in an even-larger haircut. You’ll find that, most often, regular commercial debt is your best alternative.

Avoid being too debt-averse:

There is some old-school thinking out there that debt is always bad. Debt is neither good nor bad – it is a tool that can be used well or poorly. It’s not a good idea to take on debt for frivolous reasons, but it’s also bad thinking to avoid debt when it can enable greater profits, fuel growth or bridge seasonal sales slumps. You can use a business loan to seize sudden opportunities that would otherwise be out of reach.

The miracle of leverage:

If you have good profit margins but are constrained by limited cash, borrowing money allows you to increase sales and profits by letting you increase your offerings. Leverage – the use of debt – can boost your return on assets and return on equity. As long as your incremental returns exceed your incremental costs, your profits will increase through leverage.

Be wary of unwanted partners:

When you borrow money, you remain in charge of your business. If you instead invite in equity partners, you now have to deal with others who might not agree with your ideas. If you don’t want junior partners questioning your every move, stick to debt financing and avoid the extra headaches.

How to Budget for Your Business Despite Your Irregular Cash Flow

Uncertainty is the name of the game for many small businesses. You might not know how your orders will flow next month, whether demand for your product or service will change, or whether you’ll be hit by some unanticipated expense. Your business might be highly seasonal or might depend on external factors beyond your control. These contingencies can make for volatile cash flows that demand attention lest they deplete your working capital and possibly drive you out of business.

Budgeting for irregular cash flows is therefore a task at the heart of keeping your business alive and growing. Your suppliers will have only limited patience if you are forced to delay payments. The inability to purchase the planned amount of raw goods or inventory directly affects revenues, simply because you’ll have less product to sell. If you need to lay off workers and managers, you can expect a steep drop in morale and holes in your operations.

With stakes like these, it’s good to know that there are several steps you can take to smooth over irregular cash flows:

Prepare three budgets:

You’ll want to budget for the most likely scenario, but also for better-than-expected and worst-case ones. Unless you have reason for optimism, pay the most attention to the worst-case scenario and make sure you budget anticipates a drastic cut in sales or rise in expenses. Should events prove more benevolent, you’ll be fine. If things turn considerably worse than you choose to imagine, you might be more willing to pull the plug and cut your losses.

Line up sources of capital:

Establish business relationships with lenders. Don’t rely on banks, because they are famously fair-weather friends – when it rains, the bankers confiscate the umbrellas. Instead, work with a commercial lender that will stand by you through good times and bad. You will need a source of cash that can move quickly and provide friendly repayment terms. For instance, IOU Financial offers daily repayment instead of monthly, which means you don’t have to fear a mountainous outflow every 30 days.

Structure your company for flexibility:

If you operate in a volatile environment, it probably makes sense to use contractors and consultants rather than employees. This gives you the ability to quickly change staffing levels without disrupting peoples’ lives. You also sidestep issues concerning unemployment insurance, tax withholding, employee health insurance, retirement plans, etc. Choose suppliers and vendors who are willing to commit up front to extended repayment terms.

Share information:

The best practice today is to share your production data with your suppliers, who can then react faster to your changing needs. To the extent that you can make your suppliers your partners, you have the best chance of weathering bad times without facing lawsuits for nonpayment.

Factor in factoring:

When facing a cash crunch, consider factoring your accounts receivables. This will provide a fast cash infusion, but will cut your net income. Factoring can be useful, but is often more expensive in the long run than is simply borrowing at a fixed interest rate. You can also raise money by wholesaling inventory and selling off equipment, as long as this doesn’t permanently damage your revenues.

Find investors:

It’s not easy for small businesses to find outside investors, but if you can identify a willing angel investor or venture capitalist, you might be able to arrange a sale of equity. While this will bring in fresh money, it will also dilute your ownership. You might not be thrilled by having new partners in a business you created from scratch.

These options are useful, but the fastest and most convenient method to ride out volatile cash flows is to arrange a business loan with a reasonable interest rate and convenient repayment terms. If you agree, contact IOU Financial today and have funds deposited into your bank account in as quickly as one day.