Many Small Businesses Fail Due to Lack of Cash Flow

Many Small Businesses Fail Due to Lack of Cash Flow

Every year, thousands of people open their own business, achieving one of the great American dreams. Unfortunately, many of these businesses will fail. According to the Small Business Administration (SBA), approximately one-third of all new businesses will fail within two years of opening. Understanding why many small businesses fail is key to knowing what steps to take to avoid the same fate if you are considering starting your own company.

One of the main reasons that businesses fail is the inability to manage cash flow. While funds are being spent to purchase materials and supplies, pay overhead expenses and provide services, money is not coming in until clients and customers finally pay their bills. Many businesses face an extended period during which their cash flow is negative, meaning more money is being spent than is being received. Without sufficient capital or credit on which to draw until cash flow is positive, business owners have no choice but to close their doors.

There are, however, ways in which you can improve your cash flow and collect payments due to your company. Obtaining merchant accounts with credit card processing companies will allow you to offer customers the choice of paying with credit cards, rather than with checks. Not only will this give you the ability to receive payment more easily, merchant accounts give you next day access to your funds. By having faster access to payments for your products and services, you can better ensure your ability to pay your businesses bills.

Offering credit card processing could also draw more customers to your businesses. Many credit card companies offer business cards that help small business owners manage all their expenses, making it not only the preferred method of payment but the only one some small business owners have available. If you are not able to accept credit card payments, you will lose that business.

While it does not guarantee success, obtaining a merchant account and accepting credit card payments can greatly improve the chances of seeing your business succeed. You’ll receive payments faster and have nearly immediate access to your funds, allowing you to pay your bills on a timely basis and grow your business. Rather than being a statistic, you could become one of the American success stories.