When you started out, it was just you in the spare bedroom and a handful of clients. Tracking your business and keeping up with the details was easy. Then you got successful and you found out that running a successful business is both exciting and something that you can't do all by yourself. You need money to expand but you're still new enough you probably won't qualify for a loan. What can you do?
Chase Them Down
As a sole proprietor, you're sympathetic and you understand that some clients aren't that great about paying their bills on time. Unfortunately, now that you're ready to expand, you can't afford to offer your clients that leeway anymore. You have to get tough and start collecting what you are owed.
While most of your clients will probably pay up upon receiving your "payment due" reminders, some won't and it can take months to get the money you're owed through traditional channels (like small claims court or debt collectors). If you need the money right now and your clients haven't reached the stage where collection agents are required (90 days is the magic number there) you might want to think about accounts receivable financing.
Accounts receivable financing (sometimes called factoring) is where you borrow money from a company and put up the amount your clients owe you as collateral. The amount you can get from the company is usually a little less than what you would get from the client himself, but you get the money immediately while the company you've hired is tasked with collecting what is owed. Lots of businesses use this as a way to get some quick operating cash during "crunchy" times.
PRO TIP: The earlier you hire someone to take on your accounts receivable financing, the better. The longer you wait, the more of a hit you'll take on what you can get "advanced" to you. Moreover, accounts that are more than ninety days past due won't typically net you anything as most AR financiers won't buy them.
Working Capital Loans
Working capital is the amount of money you actually have available to pay for what your business owns. The colloquial term is "cushion." It's figured out by taking what you owe (liabilities) and subtracting that from your assets (cash coming in/on hand and things that can be quickly converted to cash). This "working capital" is seen as your level of protection should creditors come calling. You want that number to be in the black.
A working capital loan is given to businesses that need a short term influx of cash to keep their businesses running during lean times. Businesses that are seasonal or cyclical (like retail operations) often rely on them. If your working capital is in the black, you should be able to apply and qualify for at least a small loan that will help you hire some help to beef up your business while you collect on accounts and expand the business to be more profitable.
These are just three ways that you can get a quick influx of cash to help you expand your home business properly. Talk to your accountant about which option is best for you and your current business setup.
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