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Back to Basics for Working Capital Management

A simple common sense solution will often be more effective than a complicated approach when businesses are faced with difficult financial circumstances. The critical importance for small business owners placing a high priority on “getting back to the basics” is exemplified by increasingly limited working capital funding options in the face of commercial banking problems.

While a traditional bank solution will generally involve taking on more business debt to resolve financial problems, a process of reviewing “working capital basics” should help businesses determine if other commercial finance options might be more effective in resolving a current predicament. Small businesses will quickly realize when they review working capital management and business loan basics that the most effective small business financing options sources have changed during the past few years. Primarily because the active role that banks have traditionally played in providing both working capital loans as well other forms of commercial loans has been quietly stopped or significantly reduced, commercial borrowers might need to be alerted that there are both “new basics” and “old basics” for most business financing situations.

Ensuring adequate business cash flow has become a higher priority for most businesses because of declining sales occurring simultaneously with decreased availability of bank financing. Borrowers are increasingly likely to attempt to juggle the timing of expenses with receipt of business income whenever possible. Business owners will realistically be forced to “get back to working capital financing basics” because this is not an ideal solution under any circumstances.

A potential cost reduction that should not be overlooked is looking at whether it is feasible to decrease overall bank financing. Many banks are increasing their fees for almost all small business financing services. Businesses should increasingly try to reduce their business debt levels to avoid some of the inflated bank fees altogether. The option of firing a current bank and replacing them with a new bank charging more reasonable fees will need to be emphasized when this is not practical.

Another primary alternative for any business to explore in their efforts to deal with a mismatch of income and costs is business expense reduction, and credit card processing is always a significant cost to evaluate. This is frequently an expense area that is overlooked because the credit card processing provider was chosen for convenience or perhaps because they were recommended by a banking or other professional relationship. Analyzing alternative providers in conjunction with obtaining a merchant cash advance is one of the most practical methods for reducing this cost. By combining efforts to obtain additional working capital (via a business cash advance) with a change of processing services, two cash flow benefits can be achieved by receiving commercial financing while simultaneously reducing a major cost. Certainly there will be those who say that this is easier said than done, and it is appropriate to emphasize that this process should involve the close involvement of a business financing expert who is familiar with all aspects.

Because of the recent ineffectiveness that prevails with commercial banking, business financing can no longer be taken for granted by any business owner. Working capital loans represent an ongoing illustration of the wisdom for small businesses deciding “it is time to get back to the basics” when confronted with complicated business financing problems. Improvements should always be welcomed by commercial borrowers when reviewing their cash management and working capital financing options.

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