I know I sound like a broken record. But there are way too many of you out there who don’t understand that cash flow is about money moving in and out of your business. Cash has to come in for your business to survive and thrive. And if it isn’t coming in via sales, you’ll have to get it from somewhere else. But don’t wait until you’re in a cash flow crunch. It will be too late. Educate yourself and get ready now. Here are some interesting survey results from the American Express 2006 Semi-Annual Monitor.
Nearly 4 in 10 small business owners (38%) rank growing their enterprises as the single most important priority over the next six months. Many will finance growth by reinvesting profits (46%), but one in five (20%) will take out either a bank loan or a line of credit, 4% will seek out private investors, 3% will borrow money from friends or family, and 2% will use venture capital sources to fund growth.
Yet when it comes to business loans, lines of credit and other sources of financing small business owners have a lot to learn. Nearly half of small business owners (49%) incorrectly believe a consumer loan can generally be used to help fund a business. This misunderstanding is actually higher among those planning to use a bank loan or line of credit to finance growth over the next six months (61%). Another 13% did not know and couldn’t answer the question. Among those business owners planning to take out a bank loan or line of credit to finance their business growth, nearly one-third (29%) describe their biggest frustration as needing more money to grow their business but having difficulty finding the money.
Similarly, large numbers of small business owners (46%) believe incorrectly that banks commonly make loans to loyal customers who are in the midst of a cash flow crunch. Just over a third (34%) believe, again incorrectly, that a term loan and a line of credit are pretty much the same, and nearly four in ten (38%) believe it’s a good idea to apply to as many lenders as possible when seeking a loan. The opposite is true. There is also confusion on the part of small business owners on the availability of venture capital, only 43% think that venture capital is hardly available to small business owners.
“In speaking with small business owners, I have learned a company’s first thought when it has cash flow issues may be to look for financing, but this may be the worst time to seek funds,” said Susan Sobbott, president, OPEN from American Express. “Instead business owners should consider applying for a line of credit when cash flow is strong in order to have peace of mind and comfort knowing that they have funds they can tap into when cash flow issues arise.”
I couldn’t agree more. And my new book Small Business Cash Flow helps you figure out the maze of financing your small business. It’s due out in October 2006. Just hop on over and enter your name and address so you’ll know when it’s available, or you can preorder it at Amazon.com