Ultimately, 29% percent of small businesses close because they run out of cash. 82% cease operations due to cash flow problems. Why are these numbers so high? What can you do to ensure that the money you invest does not run out before you reach profitability?
Joining a franchise can help in planning and budgeting your business venture and avoiding cash flow issues. Learn more about how a franchise business can help minimize these financial pitfalls.
Cash Flow Overview
Cash flow is the lifeblood of any new business, and understanding it is crucial for your financial success. Essentially, cash flow represents movement of money into and out of your company over a period of time — typically a month or a year.
Positive cash flow occurs when you have more money coming in than going out. Positive cash flow provides you with the financial stability to cover your expenses, invest in growth, and overcome unforeseen challenges.
On the other hand, negative cash flow happens when expenses exceed income. It can lead to financial strain and hinder your ability to sustain and expand your business. Too many businesses fail because they get stuck in a pattern of negative cash flow.
As a new business owner, it's essential to manage your cash flow carefully, monitor your accounts receivable and payable, and create a robust budget to ensure your business thrives in the long run.
Common Cash Flow Problems
A healthy cash flow is the foundation for achieving your business goals and staying afloat in the competitive marketplace. However, it's not always easy to achieve. Here are some of the top cash flow problems that new business owners face.
- Irregular income: Many businesses have inconsistent revenue streams during their first few months. Additionally, cash flow can be impacted by seasonal changes, market dynamics, or unexpected economic events.
- Delayed payments: Depending on the type of business, you may receive delayed payments from customers. Struggling to collect outstanding invoices can put a strain on your cash flow.
- Excessive spending: While it may be true that you have to spend money to make money, uncontrolled spending will run your business to the ground. Uncontrolled or unexpected expenses can quickly deplete your business savings.
- Poor budgeting: If you don't have a solid business plan and budget from the beginning, you may end up spending way more than you thought you would.
- Inadequate credit management: Relying too heavily on a line of credit to manage cash flow can lead to mounting interest payments and a cycle of debt that becomes increasingly challenging to break.
- Insufficient cash reserves: Failing to build up a financial cushion for unexpected events can leave a small business vulnerable to unexpected expenses.
Luckily, your risk of getting stuck in these cash flow problems can be minimized by partnering with a franchise business.
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How A Franchise Can Minimize Cash Flow Problems
1. You Can Review Financial Data
All franchises are required to have a Franchise Disclosure Document (FDD), which can be a very helpful tool in evaluating franchise opportunities and costs. An FDD contains estimated initial investment, fees, expenses, and financial performance representations. 2.By reviewing your franchisor's FDD, you can better estimate your profit margins using income and expenses.
Within Caring's FDD, we provide a low- and high-end accounting of startup expenses as well as capital needs for the first 6 months of operation. These numbers are based on what our owners spent. And we are constantly gathering data based on our owners' experiences to keep information current.
Our Franchise Development team will help you gain a better understanding of the costs you may incur. The cost of opening a home care business can vary depending on the state and overall market that you will operate in.
2. You Can Talk to Other Franchise Owners
When researching franchise opportunities, you can talk to people like you who have already taken the leap from employee to a business owner. They may be willing to share information with you about their cash flow management and even provide short-term or long-term financial planning tips.
As a part of Caring Senior Service's franchise sales process, you will talk to other Caring franchise owners. You can talk with new owners and veteran owners to discover how they have navigated finances and cash flow planning.
When you speak with new owners, you can address any specific concerns or questions about cash flow. This is information that you simply don't have access to when starting your own business without the backing of a franchise.
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3. You Can Strategize with Franchise Development Professionals
Franchise companies have a strong team at their corporate office. These franchise development professionals know what it takes to be successful. As a new owner in a franchise system, you can take advantage of their expertise to grow a successful business. From how to register your business and obtain licenses and permits to exploring different types of business loans, your franchisor should be able to guide you.
At Caring, we know how much cash it takes to make a home care business succeed. That's why we require new owners to have liquid capital on hand and meet certain financial requirements. We also have access to other entities that can help you plan for the optimum use of your resources when starting your business.
As a franchisee, you have access to the data and resources you need to make accurate financial projections. The franchise system is designed to set you up for success and help you overcome the obstacles that many small business owners face. It's up to you to maintain your cash flow properly and seek out additional help when you need it. Get in touch with our team today for more information!
