Every trucking business goes through a developmental cycle. Often the cycle follows the familiar pattern of business startup, growth stage, maturity and then ends in a business decline. Each stage of this business cycle poses its own cash flow challenge. Reputable invoice factoring companies offer high value services to help trucking companies through each stage of the development cycle.
The first step in surviving the inevitable cash flow lows is recognizing when they're bound to impact your trucking business.
- Understand what point your business is at today in its developmental cycle.
- Recognize where the cash flow pitfalls will be and include them in your cash flow budgeting.
- Accept that things will change as your business matures and moves through its cycles. As you plan your changes, be sure to consider the impact it will have on cash flow.
Armed with this knowledge, you can put together a plan to provide the financing to see you through.
Statistics show that 50% of private startup businesses fail in the first year. One key reason they fail is a lack of working capital. When you consider the cash required upfront to purchase equipment, set up your trucking business's infrastructure and to market and promote your trucking business, it's easy to see how cash can come up short. Add to that the difficulty that many startups face in obtaining financing from banks and traditional lenders, and you understand why so many businesses fail to keep up with cash flow demands.
Business growth stage
Business growth is an exciting time. The disconnect in timing between receiving a contract, covering the costs of delivering the contract and then actually getting paid, however, puts a huge strain on cash flow. In fact, some businesses going through a high growth stage will actually stall that growth because they can't find the cash flow to finance it.
The mature business
This tends to be the best time in a business's cycle to qualify for traditional financing. You may even have a steady stream of regular customers. So what's the problem? This is the time when the smart business owner realizes that change is required to keep a mature business from becoming stagnant. That can include things like taking on a partner, expanding to a new market or bidding on larger, more lucrative contracts. All these types of changes require working capital above and beyond typical day-to-day operating expenses.
The declining business
Changes in market, a dip in the economy, the loss of a major customer, the retirement of a partner; these can have short-term or long-term affects on your business and its available cash flow. While you can't always predict the things that will cause a decline in business, you can be prepared with a backup plan for cash flow to see you through. Solutions like restructuring or taking on a new partner can also put a strain on cash flow at a time when traditional lenders may become wary and refuse to extend financing.
Your Cash Flow Backup Plan
Work with your accountant or an accounts receivable management company to budget and plan for cash flow, the same way you would for your business and its growth. By recognizing the impact on cash flow caused by different stages of business, you'll be better prepared to address and survive them.
- Before you need it (preferably when business is good) organize a line of credit that you can draw upon during cash shortages.
- When profits are strong and cash flow is good, set aside a cash reserve.
- Consider contacting accounts receivable factoring companies to provide short-term cash flow solutions without incurring debt.