“Capital support” is a term I use to figure out how a business can access the capital they need to support their activities. Many businesses owners wouldn’t consider “capital support” an item that they would specifically and intentionally address as they manage their cash flow the best they know how as capital is needed. Taking some time to consider the sources of capital that your business has access to can help you plan your cash flow and reduce the amount of time and effort spent trying to scramble at the last moment.
Here is what a typical “capital support” system looks like for a small business:
1. Personal equity and credit – usually the number one place that a small business accesses capital from. The owners and principals usually contribute cash to the business by leveraging their net worth.
2. Company Credit card(s) – many banks offer credit cards to small businesses with limits that are usually less than $50,000
3. Line(s) of credit – on the rarest of occasions your bank may offer your business a line of credit that you can use to float the difference between your payables and receivables
4. Accounts Payable – many business owners don’t consider this a form of capital but when you do not pay your invoices on time the vendor who is waiting for your payment has effectively extended your business credit
5. Cash flow – as cash comes in businesses allocate it accordingly to the most pressing expenses
This list is not an exhaustive list but covers the basic forms of capital that a business uses in to operate. By creating a list or a dashboard for your business of the sources of capital available you may find that managing the ups and downs of cash flow becomes considerably easier and less taxing.
“You can’t do today’s job with yesterday’s methods and be in business tomorrow” – George W Bush quotes
Need a Mortgage or Loan now or in the future?
Click here to get prepared for your next mortgage or loan.