As our economy continues to evolve and fluctuate, we typically see a few trends with small businesses. One major trend is businesses waiting too long to seek financial assistance, resulting in closure or bankruptcy. In this blog post, we’ll share three warning signs that may signal financial trouble ahead. The trick is to raise a flag well before it’s too late to secure lending help.

Financial Audit

As a business owner and entrepreneur, you may ask yourself, where do I start?

It’s always a good idea to take a long hard look at your business operations, cash flow, and income vs. expenses to benchmark your overall financial health. If you feel overwhelmed just reading those words, we recommend partnering with an experienced financial consultant or advisor.

Warning Signs

When conducting a financial audit, you or your advisor might find some hidden issues that, if left to go for too long, can hinder your business growth or signal a financial downturn. Here are a few areas, from our experience, that we see businesses struggling with the most.

• Assets and Liabilities: It’s essential to manage the risks that arise due to mismatches between assets and liabilities. Assets are what a company owns that provide economic benefits in the future, such as inventory, equipment, and cash. Liabilities are outstanding debts the company is obligated to pay off in the future. In other words, if your income cannot keep up with your cost of doing business, plus your outstanding debt, then you have a potential problem in the future.
• Cashflow: We often see businesses suffering from cashflow issues. For instance, if a company has a vendor that is paying too slowly, it can cause impact expenses, creating a cash flow issue. In this case, a line of credit can help bridge the gap until the vendor can pay on time or another agreement is reached that puts the business in a more favorable position. It can also help increase sales and financing for those sales. The key here is not to let this issue go unresolved, as it can create a snowball effect that drastically impacts the health of your business.
• Abused Lines of Credit: In the previous point, we spoke about cash flow and how lines of credit can help. This is only the base if the line of credit isn’t abused. We see this happen if a company takes out a line of credit to help with cash flow issues and treats it like a term loan. Banks don’t like when this happens, and it results in a snowball effect going from an interest-only line of credit to a maturing term loan with increased interest and principle, causing further financial distress. It’s all about how you manage these loans and their terms.

Bottom Line

Knowing these warning signs and choosing the right lending option that best fits your need is key to avoiding problems in the future and securing the help you need before it’s too late. Banks typically won’t lend funds to a sinking business, so stay ahead of your financials.

Unsure of which lending option would best fit your specific need? At Barrington Commercial Capital, we specialize in developing custom-tailored solutions for our clients. Our team understands how money works and the parameters for using those funds in the appropriate manner.

If you still have questions about what lending solution would be best for your future goals, please contact us by submitting a form online, emailing us at info@bccfirm, or calling us at 404-602-9100. Follow us on Facebook, Twitter, and LinkedIn to stay up to speed on all things Barrington Commercial Capital. And lastly, sign-up for our monthly email to stay informed of the latest commercial capital options available to you and your business.