In this Q&A, Frohwein reveals his secrets of success, while explaining the technologies that fuel Kabbage’s lending decisions.

What are the biggest cash flow roadblocks faced by small business owners?

FROHWEIN: I break it down into three simple categories: money in, money out, and money at rest. Properly forecasting a business’s future cash position is complicated and time-consuming. It’s no surprise that 91 percent of small businesses spend as much as twenty hours per week on cash-flow analysis.

Kabbage’s data connectivity with customers is unique and allows us to build upon our funding expertise to launch a variety of cash-flow services for small businesses. By analyzing their real-time business data to better understand the flow of money in and out of their company, Kabbage can provide small businesses with access to flexible lines of credit in a matter of minutes.

What steps can a business take to get paid more quickly without killing margins?

FROHWEIN: Many of our customers issue invoices, leaving large gaps in cash flow as they can wait up to 30, 45, or even 60 to 90 days for payments. 

For larger payments or recurring services, businesses can request down payments from customers or issue monthly invoices for any work completed. To ensure consistent payments, consider offering customers a discount if they sign up for auto pay. The fact is, late payments are inevitable. In those cases, small businesses can research invoice-financing options to cover business costs while customers’ payments are pending.

Finally, there is a strong correlation between the strength of your relationship with your customer and getting paid in a timely manner, so be sure to form personal relationships as much as possible. 

What steps can a first-time business owner take to position themselves to be on track for positive cash flow from Day 1?

FROHWEIN: It really depends on the nature of the business. Service businesses can be cash-flow positive from the outset so long as they have clients right from the start. There may come a time when you want to grow the business significantly, invest in marketing, hire a few more people, get an office, etc. At that point, you might see negative cash flow until the business has grown to support the expense base.

To be prepared for cash-flow challenges, I advise all companies to diversify funding sources so when cash flow is tight you have funding options you can draw from to cover all aspects of your business. You don’t want to fall victim to a slow period with a huge opportunity just beyond that time frame.

To what extent should businesses resort to financing in order to cover payroll?

FROHWEIN: Often small businesses need less than $10,000 to cover expenses like payroll. It’s also common that they need to borrow for only a few weeks. In those instances, Kabbage provides access to 6- and 12-month loans with a prepayment benefit. However, borrowing for payroll shouldn’t be a year-round practice. If you’re finding you can’t meet payroll on a regular basis, you should look for ways to save money by outsourcing certain tasks, hiring part time workers, or shortening the hours of operation for your business.

What should a small business owner look for in a lender?

FROHWEIN: Transparency, flexibility, and caring deeply about the customer. We give opportunity to credit-worthy businesses by analyzing their real-time business data; allowing them to borrow the right amount, at the right time; and offering terms that fit their needs. It will always be our goal to help with the cash-flow burdens they face.

Does the lender/business owner customer relationship go beyond just exchanges of money?

FROHWEIN: Absolutely. Small business owners didn’t start their company to spend their time managing their books and balancing cash flow. They started their company to make a living by following their passion and serving their customers. We are focused on providing solutions that give small businesses back their most precious commodity: time. That means more than providing money, but providing proactive and intelligent services.

Looking for more resources, advice and trends? Whether you're looking to start, grow or simply run a better business, check out the Kabbage Greenhouse.