Cash Flow Problems Hit Small Business Hard in Today's Economy

Introduction

Short term cash flow is hitting all businesses hard and part of the problem is tracking when the money comes in compared to when it needs to go out. Cash flow issues are a problem for many small business owners, especially those who may be paying their business expenses from their personal paychecks, and they are living from one paycheck to the next, with no savings to fall back on. Cash flow issues are not the sole domain of the smaller business, but they are the most likely to go under if the problem grows too big. Cash flow issues are what make or break startups. Small enterprises faced with cash flow issues are also more likely to find banks denying their requests if their legal structure is not set up correctly.

Business

There are business risks associated with conducting day to day business operations. Businesses rely heavily on cash flow to be able to weather the fluctuations of the business-cycle. A lot of initial investment on premises, equipment and marketing is often needed, not to mention the costs that arise from the inevitable inefficiencies of a business in its early days.

Financial

Financial independence means the ability to respond to changing circumstances, to take advantage of opportunity, to respond to adversity. Starting a new business can be financially fraught. If you are investing your own money, then you are risking your personal financial security as well as your newly founded business. Worrying about both can cause high stress and a great deal of worry.

Solution

The best solution to this problem is to set up your new business entity correctly so that you can take advantage of the tax benefits and increase your personal liability protection. Separating your personal finances from your business adds the shield that will help you to avoid the risk of damaging your FICO scores, or worse losing your house, car, or life savings due to a failed business.

Once your business entity is set up, you can start creating a business credit profile that will allow you to obtain business lines of credit, small business loans, business credit cards, and vendor credit. But you must know how to apply for each of these in order to keep the business separate from the personal.

Conclusion

Avoid cash flow issues caused by using your own personal income. Use OPM (Other People's Money) so that you can have the funds for your day to day operations without having to worry if your paycheck will be enough to pay for both your personal bills (mortgage, car payment, insurance) and your business bills ( rent, inventory, advertising).

Source by D. Susan Carter

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