5 Methods to Attain Working Capital
In order to run a successful business, you will need a substantial amount of working capital constantly flowing in and out. Working capital represents the money your business has on hand to pay for everyday expenses, like operating costs or paychecks for employees. New businesses are in need of it quickly, so here are five methods to attaining working capital for a startup.
Small Business Administration loans offer long term working capital. You will have to pay the loan in installments over a fixed period of time with interest, but the lump sum is useful for more established new businesses to make purchases, pay employees, or create more inventory. Keep in mind, you will need to meet specific qualifications to be approved for a SBA loan.
You can sell future invoices to receive immediate cash payments in the form of invoice financing. The process is simple and does not require a third party to make contact with your clients, your employees, or your accountant. You will have to pay interest against the future invoices once they are paid to you.
Collect Payments Efficiently
New businesses often struggle with collecting payments or sending invoices out in a timely manner. This will greatly affect your working capital. You can combat this by offering multiple methods for your customers to pay you, using an invoice tracking service, and encouraging early and on time payment through use of rewards or discounts. The sooner you are paid, the sooner your working capital cycle runs smoothly and shortens in length.
Requesting deposits from clients and customers upfront is an easy way to guarantee payments that turn into working capital. You will ensure that money is coming in for various projects or necessities. Deposits can be waived overtime to build better relationships with clients you trust or as you receive additional payments for your work.
An angel investor will give your business a lump sum of money similar to a bank or SBA loan, but the angel may not require the strict regulations that a financial institution does. If you can show a promising business plan with realistic profit expectations, an individual may want to invest in that vision. You can then use that money for working capital.
Everyday expenses for a startup company can add up quickly. Secure working capital to make owning and running a new business easier for you and those who work for you.