Cash flow management is an indispensable aspect of any business looking to achieve success and profitability; however, many small business owners have very little cash on hand.
In fact, according to a recent survey, the majority of small-business owners have less than $5,000 of cash on hand at any given time. This makes it difficult for businesses to both weather difficult situations (for example, manage an emergency or unforeseen event) and continue to grow (for example, open a new storefront or hire new talent).
These limitations are often compounded for international small-business owners who face more unique challenges than their counterparts that do business strictly stateside. Let’s explore these challenges and the ways in which global business owners can take actionable measures to keep their business cash flow positive for continued success.
Miscalculated expansion costs
A common mistake many small-business owners face is miscalculated costs when looking to expand internationally. Expansion and new market entry can have great benefits for a company, but only if done at the right time. That’s why it is crucial to take the steps toward becoming international in a prepared manner that can scale the business without depleting resources. Ahead of expanding, owners should make sure to do their research and calculate expenses for the intended market. This means taking into account factors like the business portfolio, marketing strategy, current funds, inventory and a rough budget for everyday business operations. It’s also important to factor employee costs into this calculation, as well as income projections, to reach the most accurate expansion budget.
After ensuring expenses are taken into account, the next step for small business clients is to be prepared for the unexpected and assume they will spend more than forecasted as they learn the ropes. Seeking out a business line of credit can help provide a lifeline when unexpected expansion costs arise. Alternatively, small business owners can look to apply for loans to stabilize cash flow amid the transition to becoming international if there are certain areas of operation that are expected to be especially costly. This option should be used only after considering the business’ liquidity and ability to pay it back.
Overseas payment delays
Another problem for small-business owners that operate in international markets is delayed payments from overseas customers. Timing for a small business can often be everything when there is a need to pay suppliers, but free cash flow can be tied up in unpaid balances from international customers. International payments can often take longer than average to process, making the waiting game even more crucial to staying afloat.
By factoring in the extra time it takes for payments to process internationally and making sure there is a buffer, small-business owners can avoid the last-minute scramble to come up with the money for operational expenses. To manage this issue, it is helpful for them to create explicit terms when offering payment options to customers, constantly assess their current payment system and think of ways to incentivize customers to pay faster. One way to incentivize customers to pay faster is to let them pay in their own currency, something which should be outlined in payment terms before kicking off international operations. Using tools like invoice factoring here can also help mitigate human error and ensure customer payments are collected in a timely manner.
Multicurrency payment processing
While there are many cash flow issues that are out of a small business owner’s control, an easily avoidable obstacle that many businesses run into when expanding their operations internationally is being hit with surprise costs while processing international payments and paying employees. When multicurrency payments are involved, pricey conversion rates also enter the picture. In addition to the sneaky costs and hidden fees, processing time is also an element that is often overlooked and can slow down positive cash flow growth.
To avoid waiting for transfers and incurring the fees that come along with them, seek out a foreign currency business account. Setting up an account gives small business owners more control over their money while simultaneously diminishing conversion costs. Plus, transfer time is dramatically reduced while business owners pay suppliers, vendors, and employees like a local.
There are many moving parts when trying to manage both general cash flow and international business operations that can negatively affect the business if not diligently and intentionally approached. Whether it’s getting a business up and running or aiming to break into new markets and expanding the business, cash flow management is imperative to the success of any company, at any stage. Understanding common obstacles and taking actionable steps to overcome them from the get-go can help small business owners focus on doing the work they love without looming cash flow concerns.
