Monthly Archives: August 2019

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How the Debt Cycle Limits Growth for Small Businesses

When businesses need funding, the conventional solution is to take out loans for working capital. This sets the debt cycle into motion, and many businesses find themselves dependent on loans for the duration. However, the debt cycle can place a big strain on finances and limit business growth.

What Is the Debt Cycle

When a business takes out a loan, the capital is given in exchange for debt. The business then makes payments on the loan, plus interest, to pay off the debt. Loan debt takes a good chunk out of monthly revenue, and payments must be made regardless of how many or how few sales are made in that time. If cash flow is strained, businesses may take out additional short-term loans to smooth out revenue cycles at the risk of placing even more debt on the books, and juggling various loans at different interest rates can place a business in the fast-lane towards bankruptcy.

Business Growth and the Debt Cycle

When businesses try to position themselves for growth, they also take out loans to cover the cost of expansion and increased production. The debt that comes with loans for growth capital increases the risk for business owners and limits the potential for expansion. As a business expands, the revenue must exceed the new overhead costs as well as the debt from loans in order to be successful. To compromise, many businesses scale back on growth projects so debt and overhead costs are more manageable. Even still, increased sales do not guarantee faster revenue, especially if invoices are issued on staggered payment schedules of 30 days or longer.

Breaking Free of the Debt Cycle

To maintain a healthy cash flow, build up capital reserves, and reduce or eliminate the need for debt-based financing, businesses use accounts receivable factoring. Instead of waiting a month or longer to receive payments from clients, accounts receivable factoring immediately converts unpaid invoices to cash, which allow for rapid and successful growth without the limitations of debt-based loans. No debt, fast revenue, and minimized risk that gives businesses an advantage over the competition.

At New Century Financial, we provide accounts receivable factoring services that can be tailored to fit your needs and help you reach your goals. Contact our offices today to get started.

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Business Finances: An Overview for New Entrepreneurs

New business owners often wear many hats at once, acting as their own sales, marketing, administrative, and accounting departments. Unless they’ve had prior experience as a CPA, most business owners will agree that accounting and managing finances can cause the most headaches and take up the most time. Fortunately, there are some easy tips to make managing business finances easier so you can streamline the accounting process and focus more on getting sales and growing your operation.

Keep Business Finances and Personal Expenses Separate

On the outset, this rule seems fairly obvious. As time goes on though, the lines can get blurred. Using personal savings to fund your business shouldn’t happen, but some start-ups do use personal money to launch and maintain operations. Additionally, some business owners make purchases such as office supplies, and purchase an item or two for personal use in the process. It is imperative that you keep business finances and personal expenses separate. Not only will this help to simplify accounting, but when you need to justify tax deductions with receipts, tracking business versus personal expenses becomes much easier to track.

Working Capital and Cash Flow

Working capital is what allows you to maintain and grow your business. Working capital can come from business lines of credit, revenue, or other sources of funding. Cash flow, on the other hand, and seem like a constant tug of war. Ideally, business finances are constantly improving due to a regular influx of revenue from sales. However, since most invoices are issued with payment schedules of 30 to 90 days, many small businesses experience staggered revenue with expenses outweighing income. Maintaining a healthy cash flow can create stable business finances to achieve fast growth without relying on loans.

Staying on Top of Customer Invoices

Waiting on payments from customers and tracking unsettled accounts can eat up a lot of time and resources. Your business depends on receivables, and waiting a month or longer to receive payments can place a big strain on business finances. To speed things up and boost cash flow, many small businesses use accounts receivable factoring. Factoring turns unpaid invoices into cash within 24 hours, so you can maintain a positive cash flow, build up working capital, and make the accounting process much easier.

At New Century Financial, we provide the most comprehensive factoring services nationwide. Contact our offices today and get the factoring solutions you need so you can focus on building and growing your small business.