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Alternative Ways to Avoid the Cash Flow Crunch for Small Businesses

Posted by Stephanie Valentine on July 14, 2009 in Small Business Cash Flow |

In my last few blog posts I’ve highlighted different ways that small business can increase their cash flow, with strategies that vary from bartering with other companies to turning away slow/no pay clients. Here’s a list of those blog posts in case you want to know more about ways to bring more cash into your small business.

In this blog post, I explore some more adventurous alternative ways that small business owners are discovering for avoiding the cash flow crunch.

Adventurous Ways to Avoid the Cash Flow Crunch
The methods I discussed in my previous blog posts are fairly common sense and standard; ask any good accountant and you’ll get some, if not all, of these suggestions. The two methods I cover in this blog post are less standard, and you may or may not have heard of them. Even if you have heard of them, you may not have considered them as viable options for you. But with the economy being the roller coaster that it is right now, you may want to keep your options open. So what are these two adventurous options?

– Factoring
– Creating Multiple Streams of Income

Here’s an overview of these two options so you can start wrapping your mind around them.

Factoring
The word “factoring” doesn’t give you much detail about this option, but it can give your business a boost if you are suffering from constipation in the cash department. With factoring, you sell your accounts receivable to a factoring company, which is usually a bank or a commercial finance company. When you sell your company’s receivables, you get cold hard cash. It is then up to the factoring company to collect cash from the clients who owe money.

The good news is that factoring is becoming more popular and more possible for small business. Previously, if you small business owned less than $10,000 in accounts receivables, a factoring company would not consider working with you. These days, factoring companies are willing to be more flexible. According to the president of one factoring company, only three percent of all small business that are eligible for factoring are even aware that this is an option to generate cash for the business.

Now for the bad news. As with any finance option, you pay a price for getting cold hard cash. The average fee is 5% per month of the total receivables amount, and the factoring company may not accept receivables with payment terms of longer than 90 days. In addition, you run the risk of angering clients if the factoring company resorts to harsh measures to collect their cash. Factoring gives you a definite cash option that you may want to consider, depending on how strapped your small business is for greenbacks.

Creating Multiple Streams of Income
Popularized by Robert Allen and other authors, the creation of multiple streams of income is the new frontier for entrepreneurs and small business owners. Whether this means becoming a shareholder in other companies, creating a new line of electronic products that can be digitally delivered, or doing pure investing, these days small business owners are gathering income streams from diverse markets for financial stability.

The bad news is, of course, that in a cash-poor economy you might not have cash on hand to invest in real estate or other companies (the whole goal being to bring cash in, not spend it).

The good news is that you have other assets that you might be able to convert into alternate streams of income, aside from what your small business currently brings in. For instance, as an entrepreneur you have knowledge, experience, skills, and talent. These intellectual assets are all inside your brain and, for you, free for the taking. The question then becomes, how can you turn those assets into products you can sell for an additional stream of income? Additionally, can you turn one of your company’s physical products into a digital one? Here are some of low-cash sweat-equity ways small business owners are cashing in on multiple streams of income. They are using their own knowledge plus the intellectual and physical assets in their small businesses to sell:

– educational DVDs, CDs, and ebooks
– memberships to websites and webinars
– online consulting (fixed price for a fixed job)
– networking events to match businesses with each other
– affiliate programs

Does this spark any ideas in your brilliant mind as to how you might turn your own or your small business’ assets into a new stream of income?

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