For small business owners, accessing capital when you need it can be challenging. Many small businesses are undercapitalized, lack an established financial history, and aren’t able to show solid cash flow. These issues, in addition to a lack of awareness about where to go to access capital, can often leave small business owners feeling frustrated and alone.
Check out these tips to eliminate some of the barriers:
• Develop a business plan. This is a big opportunity for most small business owners. Learning how to write a business plan is an essential first step – it explains what product or service the business is offering, business financial goals, and how the business may tackle any environmental or market risks. Business plans lay out what the desired goal is and how it will be accomplished.
It also serves as a resource for potential investors and lenders – articulating current financial status, sources of revenue and how to meet revenue projections.
• Get financials organized. It is important to establish a checking and savings account specifically for the business and separate from personal account(s). A solid financial foundation creates a solid business platform and allows business owners to establish credit and financial stability. Plus, personal and business finances matter and can have an impact on financing.
On the business side, a bank will determine if the business is generating a positive cash flow. On the personal side, a bank will want to know if there is enough income to support not only the current debt but also the debt that is being requested. Having accurate financials are crucial to determining the business financial need.
• Build relationships with critical partners. It can take a village! Make sure partners are aligned to support the business including an attorney, a CPA, as well as a small business banker. Good relationships with these partners are important in navigating business lifecycle changes as the business grows and helping determine if financials are in order before applying for funding. Utilizing resources to build other relationships can also help with potential financing options, such as connecting with a Community Development Financial Institution who can also help a small business access capital.
• Demonstrate a consistent and positive flow of funds over time. Positive cash flow is critical to short- and long-term financial success. Small business owners need to make the most of their cash by monitoring expenses, collecting payments quickly, and using resources that can make cash flow management more convenient. Owners should draft a cash flow projection to provide added control over cash flow and get a clearer picture of the company's financial health.
Planning is key for small business owners looking to access capital. In fact, planning and preparing business finances in advance might be the most crucial part in getting a “yes” and access to the funding needed! Small business owners shouldn’t wait until capital is needed to start looking for it. Instead, they should get financially organized, create a plan, reach out to partners, and take advantage of the many online resources available for small businesses.
Brian Formisano is the Wells Fargo branch banking region director in the Carson Valley.
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