When you're running a business, cash flow ups and downs are inevitable. Knowing how and when to stabilize cash flow is an important foundation for business success. In a recent Kabbage survey, most business owners said they reached profitability in the first four years of their business the "make it or break it" years.
Keeping cash flow steady requires a lot of work and time, which you'd no doubt rather use on other aspects of your business. When we asked these small businesses how they'd use their newfound time if they could eliminate cash flow challenges, 51 percent said they'd invest more effort in sales and marketing to drive new business, while 35 percent said they'd develop new products and services.
By closing gaps in cash flow, you're in a great position to invest in your business, whether it's through marketing and advertising, stocking up on inventory, or expanding into new markets. Here are three examples of entrepreneurs who realized their growth dreams while keeping their businesses healthy.
Boosting inventory between payments.
When Mark Van Duyne imports kitchen and bathroom cabinets for his business, Quality Home Products, he has to pay manufacturers right away-but his customers might not pay their invoices until 30 days after delivery. In the interim, Van Duyne uses a line of credit to pay for expenses like warehouse rent and payroll.
Van Duyne is thinking of expanding into Texas and neighboring states. With stable cash flow, he can stock up on inventory and expand his warehouse space. "You don't want to take on new customers and not have the material," Van Duyne says. "So, I use the extra money to build up my inventory."
Getting breathing room to expand.
Haefner Law Office, run by Deanna Haefner and her husband, Mark, in St. Louis, offers unique flat-rate pricing for services like divorce and preparation of wills. While they're waiting for clients to pay fees, Deanna and Mark still need to cover costs like payroll. A credit line helped the Haefners stick to their business model and generate good word of mouth for the firm.
"I like that I'm able to invest in my marketing without having to worry if we'll be able to make payroll," Deanna says. The Haefners are thinking about opening an office in nearby Kansas City, followed by other Midwest cities, now that cash flow is comfortable. "We feel like we have the flexibility to grow now that we have some breathing room," she says.
Putting money into marketing.
Laurence Girard founded Fruit Street, a digital health platform that helps patients manage diabetes with an app connected to their Fitbit. Instead of seeking traditional venture capital investment, Girard received funding from physicians who have a genuine passion for healthcare. However, Girard still needed to diversify funding sources for daily cash-flow management and marketing.
"People have the misconception you automatically have millions of dollars at your disposal when startups acquire funding," Girard says. Instead of dipping into operational budgets and putting cash flow at risk, he used a line of credit to pay for advertising. "That way we could reach millions of consumers and physicians on social media who could benefit from our product," he says.