Voices

Help small-business clients raise capital with three accounting practices

No one has better visibility into the finances of a small business than their accountant. As someone with a birds-eye view of your client’s cash flow, you are in an ideal position to identify patterns, spot warning signs, and flag opportunities. This financial insight can be crucial for a small business that is trying to raise capital.

Whether your client needs to raise capital to cover startup costs, expand their offerings, or weather seasonal business swings, your advice can help them access the funding they need. Strengthen your small-business client relationships by helping them prepare to raise capital — before they need it.

Advising your small-business clients on how to raise capital is also an opportunity to differentiate your firm. More and more businesses are seeking cash flow advisory services, which makes this an ideal time to expand your offerings.

Here are some ways you can integrate cash flow advisory into your practice:

Monitor cash flow

We all know that cash flow is the lifeblood of any business, but all too often small business owners don’t have the resources or energy to track the cash that flows in and out of their business. If your client is applying for a loan, it’s crucial that their cash flow is strong enough to show lenders they can comfortably repay the loan. In other words, prove the business is not a risk.

No matter if the application is with a traditional or alternative lender, cash flow is one of the most important factors that will determine whether or not a loan will be extended. Helping your client monitor their cash flow can put them in a strong position to access capital when they need it.

These days, intuitive cash flow management software makes it simple to track, analyze and project cash flow. Visuals like charts and graphs can help your client get a complete picture of their company’s financial health.

With regular monitoring and cash flow projections, you will be able to identify patterns and anticipate upcoming dips that may require an influx of capital. This insight can help your client prepare in advance to prevent costly last-minute scrambles.

Build business credit

From business credit cards to loan qualification, good credit is key to accessing capital. A poor credit score (personal or business) can sink someone’s chances of securing a loan, while a solid score will help secure more funding at a lower interest rate.

Is your client still using personal accounts to run their business? Consider advising them to establish a business entity that is completely separate from their personal finances. Helping them incorporate will limit their personal liability and allow them to build their business credit.

Clients should be advised to protect their personal credit score as well. Many lenders pull personal credit scores when they ask for a personal guarantee, or if the business is new and has yet to build up business credit. Financing regular purchases like office supplies and marketing materials is a good way to build business credit fast. It goes without saying that all business and personal bills must be paid on time, every time.

Is your client already incorporated? Make sure the business is registered with the appropriate credit bureaus. You can help obtain a DUNS number from Dun & Bradstreet and register with business credit bureaus such as Experian and Equifax. Monitor both personal and business credit reports to keep tabs on scores and correct any errors that may bring them down.

Helping your clients protect and build their credit scores will put them in the best position possible to get funding when they need it.

Borrow against unpaid invoices

Does your client need cash fast? Are they waiting to be paid on outstanding invoices?

As their accountant, you are likely to have visibility into what exactly your client is owed, and when. That allows you to identify gaps between payments going out and coming in that may cause their cash flow to dip into the negative.

Invoice financing (factoring) allows businesses to borrow against unpaid invoices when they need an influx of capital fast. This can be especially helpful to avoid cash flow issues, or when your client needs funds to support a growth opportunity. This type of loan is a solution for fast cash, as many of the loans are processed in as little as a day.

Invoice financing can be a good way for startups to access capital, as many types of loans can be difficult for new businesses to secure. This option is especially helpful for clients who have less than stellar credit, as the credit score of the customer who owes the unpaid invoice is given more weight than the invoice issuer.

Accessing capital is one of the biggest challenges that small businesses will face. Having insight into your small-business clients’ finances allows you to act as an advisor and help them access capital when they need it the most, enhancing both your relationship and reputation. Is it time to integrate cash flow advisory into your services?