Tips for balancing cash flow and future spending

by Tyler Heap, Vice President, Senior Credit Officer

Cash flow is one of the few vital considerations that spans across all businesses and industries. Strong, dependable and predictable cash flow helps a business maintain stability and have the resources on hand to both confidently make routine purchases and address any emergencies that may arise. Of course, spending is also an inescapable fact of operating a business, and it can't always perfectly line up with your cash flow. Let's look at how you can effectively balance these two elements and make your business as effective as possible.

Alternatives to making large purchases

Buying machinery, fixed assets and other basic operational needs can put a big dent into cash flow, especially for newer and smaller businesses. The good news is there are plenty of alternatives to an outright purchase to keep in mind. You can likely find an option to lease or finance a variety of core equipment, from a company car to a backhoe loader or fleet of semi trucks. The same is true for fixed assets like production line equipment, real estate and many other common assets.

While a direct purchase is often the least expensive choice for many types of equipment, tools and similar items, it can put your business in a precarious financial position if you don't have strong cash reserves. The additional money you pay over time to lease or finance can be worth it if it keeps your overall cash flow strong in the long term - just be sure to understand all of the costs before making a decision. Depending on how your business approaches accounting, you may also find leasing or financing to be more useful from a tax perspective as well. TAB Bank offers some exciting financing options for the trucking industry.

Utilizing business lending options

Cash flow can be less stable for a number of reasons, from the seasonal nature of your business to a few uneven months of sales. Your business may be strong, with plenty of clients and opportunities for growth, yet your cash flow may not reflect that. How can you address this problem to keep your company on sound financial footing? Consider these business lending options:

• Accounts receivable financing: Unpaid invoices sitting with your accounts receivable department certainly have value, but you can't gain any benefit until they're actually paid. A/R financing allows you to tap into these resources on a much shorter timeline. This form of lending simply uses your existing invoices to support a line of credit that you can use for nearly any business purpose. This is an especially powerful option for businesses that have uneven cash flows or operate in an industry with especially long timelines for settling debts, as well as for any company that simply needs dependable, quick financing.
• Asset-based lending: Asset-based lending considers a potentially broad range of assets - like accounts receivable, inventory and even some equipment - to create a more flexible solution. This option is highly dependent on the specific assets your business owns, so get in touch with us to learn more!

TAB Bank knows business, it is why we do what we do.  We love helping businesses succeed and are always looking for the opportunity to share our wealth of knowledge.  In that vain we have additional resources that you may be interested in, click the tile below to read our whitepaper titled, "How Businesses Prepare for Cash Flow Crunches."

About the Author

Tyler has spent his career analyzing businesses from both an owner’s and lender’s perspective. His love for small business and the entrepreneur budded as he co-founded a business in college which paid for his education and resulted in the sale of the company shortly after graduation. Tyler worked for a manufacturer and distributor of sporting goods after graduating from college, where he managed the company’s finances and investor relationships. His banking career includes vast experience in relationship, portfolio, distressed loan, and underwriting management.

In his current role, Tyler is responsible for leading the underwriting, special assets, and collateral monitoring teams in conjunction with managing overall credit quality at TAB Bank. He received a double Bachelor of Finance and Economics from Utah State University. Over the years he has been an active participant in the International Factoring Association, Commercial Finance Association, Utah Bankers Association, and the Pacific Coast Banking School. Tyler is also an active member of his community through volunteering and donating to local charities, schools, and special cause groups.

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