Solving Cash Flow Challenges Using a Line of Credit

How to Handle Cash Flow Gaps (without losing sleep)

For small businesses like retailers or cafes, money is coming in the door every day. For others, like consultants and professional service providers, the gaps in revenue could be days, weeks, or even months apart. That means careful budgeting so expenses are covered while waiting for customers to pay, or for deals to become final. Business owners like Linda Jordon and Jim Brady have come up with smart strategies for keeping their businesses healthy in between payments.

Linda, who owns Diamond Realty Investments in Creedmoor, N.C., manages gaps in income all year long. She buys, renovates, and sells homes, only earning a return on her investment when she successfully closes sales. Between buying a home and selling it, Linda has to pay for office space and payroll for a part-time assistant, as well as the contractors renovating the homes. 

“The timing depends on how long it takes to rehab a house and whether we have issues with inspections,” says Linda, who’s been in real estate for about 15 years. “When I can remodel quickly and sell to a cash buyer, I might close the sale in 30 or 45 days. But if I need 90 days to remodel, and then another 90 days to find a buyer and close, it can take as long as six months to see any profit.” 

To close the gaps between investments in homes and their eventual sale, Linda staggers purchases throughout the year. “The goal is to close a deal every month so there’s cash flow coming in,” she says. If money is tight and home sales aren’t closing as quickly as she likes, Linda may skip the renovation stage.

“If I know I have a cash flow issue, I’ll buy a property and not do the rehab,” she says. She’ll make less money on the deal, but she’ll get paid quickly.


Using a line of credit as a “safety net”

Jim’s company, Shaker Consulting, is also subject to ups and downs in revenue. The Shaker Heights, Ohio business helps small companies sharpen their sales strategies and sell their products and services to federal government agencies. Depending on the size of client projects and how quickly Jim can complete the work, the business can have periods where cash flow is slow.

To bridge these gaps, Jim uses a Kabbage credit line to pay for ongoing expenses like office space and payroll for two employees and a network of freelance workers. “As a business owner, you spend every day looking over your shoulder, trying to keep costs covered,” Jim says. “So you need that safety net.”

Linda also taps into a line of credit while she’s waiting for rehabbed homes to sell. In her case, the credit line helps cover the cost of marketing her business. Diamond Realty is part of HomeVestors, a real estate investing franchise; Linda and other franchise owners pool their marketing budgets together to buy billboard and TV ads at reduced rates. “The more marketing I can do year-round, the more customers I can get,” Linda says.

As Linda shepherds her rehabbed homes through to closing, she has another source of revenue: her rental income. She started buying rental properties long before she established Diamond Realty. “I didn’t know then that having rentals would help me with cash flow,” Linda says. “But now the rental income helps when I need to pay costs for the real estate business.”

Whether it’s a line of credit or a second business, Linda says business owners should keep their eyes open for ways to cover expenses in between paydays. “You have to have flexibility,” Linda says. “Having multiple sources of income is where you’ll get help with cash flow.”

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