Is your business one of the many American ventures that accessed a merchant cash advance? Are you worried that this might affect your profits or overall financials? Have you started to feel like it is already affecting you in a negative way? Follow along with us in this article and learn how you can easily identify if your business is in financial hardship or not.
We’ve previously discussed how daily payments can lead to hardship, and today’s subject will expand further of this. This article will further detail the negative effects of a cash advance and the financial hardship that this particular type of financial product can bring along with it. As we all know, the main interest for MCA providers is to get their money back as quickly and effectively as possible. However, this doesn’t always mean that your businesses’ interests are the MCA’s top priority. If you have already accessed a cash advance, or worse, have stacked several advances to help cover your increasing payments, you may be starting to feel some of the negative effects of the very advance that was meant to help you. Here are some simple steps you can take to help identify if your business is experiencing financial hardship as a result of your cash advances.
STEP 1 – MAKE SURE YOU HAVE EASY ACCESS TO YOUR BANK STATEMENTS
You don’t need to have extensive financial or accounting knowledge to read through a bank statement and understand what’s going on. Therefore, it is important to constantly look over your transaction history and supervise your bank account’s statements. Most banks nowadays provide easy access to your statements, either through online portals or through on-demand hard-copies of your statements. Should you not have this already, make sure to contact the bank and request that your statements be forwarded to you digitally at the end of each month. By far, however, the easiest method of accessing your statements is through your bank’s online portal. In recent years, online banking has become an increasingly requested feature, and banks have followed suit. Most major banks, credit unions and many challenger banks provide an online portal to their customers. However, even in the rare instance that your bank does not provide online banking, or in addition to your online portal, many banks can also email you monthly, digitally delivering your statements so that you can stay on top of your funds. For those of you that are not the biggest fans of email communication, there is still nothing wrong with having the statements mailed to your business address or P.O. box at the end of the month.
STEP 2 – GO OVER THE MONTHLY FIGURES
Once you ensure easy access to your statements, inspect your overall revenue and expenses for the month. A good indicator of a possible hardship is the total amount of your expenses being higher than the generated profit. This can be caused due to the frequent payments made to the creditors, which end up raising your expenses to much more than your business can actually cover. However, this is not always a clear indicator of hardship, as it may happen to just have been a slower month or slower few weeks. In most cases, the best thing to do is to go back to your previous months as well and review the statements as far back as you can. Most analysts will suggest you look at a minimum of 90 days of activity to get a good picture of what’s going on.
Another important aspect to look at is your beginning balance and ending balance for each month. A good, profitable business will almost always end the month with more than what they started with. This means their revenue also generated a profit. If your ending balance is lower or equal to your beginning balance, this might mean that your business either wasn’t able to generate any profit, or it can be an indicator that the business is stagnating in comparison to previous months. This is not the most ideal situation, however it’s also not as critical as you might think. If your business was able to cover all its expenses, build up it’s inventory, and pay vendors and creditors, the business is self-sustaining even if it’s not making much of a profit. Even if it’s not ideal, this typically only becomes a problem when it begins to happen several months in a row, as mentioned previously.
STEP 3 – LOOK FOR OVERDRAFT AND INSUFFICIENT FUNDS FEES
By now, you might have identified that your business is not doing so well in terms of overall profits and sustainability, in which case you need to start identifying what the real cause is. If you noticed that you have recently started missing payments, go over your transactions history and look for all the overdraft or NSF fees applied by your bank. Identify the frequency with which they post to your account and try to identify which payments you were unable to cover and why. If you knew you had enough funds to cover a specific payment and it still didn’t go through, look at your transactions for previous payments that same day that might have eaten up your balance. One of the most frequent NSF reasons is the daily payments made towards cash advances. Being so frequent, they will constantly be withdrawn from your bank account, regardless of your revenue for that specific period. Therefore, every time your bank account is short on covering those payments, you end up getting charged extra by the bank as well. The more NSF fees you identify, the clearer it becomes that your business might be in trouble.
STEP 4 – ANALYZE YOUR VENDOR PAYMENTS
Aside from looking over your bank statements, a good indicator of a financial hardship is your inability to pay vendors, outstanding invoices or to maintain proper inventory levels. Should you feel that lately you have had to cut back on expenses or prioritize different invoices based on the amount or their deadline, you might be facing a financial hardship. A business generating enough revenue to sustain itself and create profit should not have issues making good on their payments to vendors or invoices. These types of expenses are usually expected, scheduled and repetitive, and therefore should be included in monthly budgets. However, if your business is in hardship, you might find out that these recurring and budgeted expenses are becoming difficult or sometimes impossible to cover. This can be caused either by a drastic change in your generated revenue trends or it can as a result of an increase in expenses, such as paying back a cash advance, line of credit or a big credit card debt.
STEP 5 – CONSIDERING YOUR OVERALL EXPERIENCE AS A BUSINESS OWNER
Being your own boss is a rewarding way of living, but it’s not always easy. With all the responsibility of successfully running a business, you might sometimes find yourself stressed out or over-worked. However, it doesn’t always have to be so difficult. If you have felt that your business is putting a lot of stress on you lately, you’re constantly worried on how to make ends meet, you’re putting a lot of your own money into the business just to keep it afloat or you’re not even taking a salary, you might already be experiencing a pretty serious hardship. An underperforming business can take a serious toll on its owners and/or manager’s health and personal life, so an individual’s ability to successfully navigate the company’s financial success is a very important aspect to take in consideration as well. Your own business should bring you and your family stability and financial growth, so never overlook your own struggles when it comes to running a business that is suffering. Even if you might not feel it on an apparent financial side, investing your savings into the business to make ends meet and a sudden increase in your stress levels might be a good indicator of hardship.
Usually, hardships do not develop overnight, nor do you feel them from one day to another. It takes time for your business to show visible signs that it’s struggling. Once you identify these signs, however, it is essential to take action immediately. A financial hardship does not always have to end up in bankruptcy or the need to take out even more loans. With a good strategy and some essential skills, you can bring back the profitability of your venture in no time. Creditors Relief provides hardship-based services for businesses that can no longer sustain a profitable activity. If you identified one or more of these issues in your current situation, be sure to give us a call and find out the best solution available to you. Our experts in negotiation will work along with you into reducing your debt and restoring your cashflow and profit.
INTERESTED IN OUR DEBT RELIEF SERVICES?
SCHEDULE A FREE CONSULTATION TODAY
