4 Cash Flow Problems in a Small Business and How to Solve Them

When it comes to the financial management of your small business, cash is the king. A business without sufficient cash on hand is usually can’t survive. So if you want to keep your business afloat and take it to the next level, managing your business’ cash flow is critical. In fact, poor cash flow is the second biggest reason businesses fail.

Cash Flow For Small Business

From low profits to over investment, unexpected expenses, too high borrowings, high overrated expenses, or overstocking, there can be myriad of reasons for poor cash flow in your small business. Whatever the cause, the key is to act promptly and manage your finances smartly to handle the situation.

Wondering how to solve cash flow problems in your small business? Well, this article will help you identify the top cash flow issues and provide you tips on how to solve them.

Late Payments

Unpaid invoices are one of the biggest challenges for small and medium-sized owners when it comes to cash flow. Small business owners usually rely on payments from their customers to cover their day-to-day and other short-term expenses.

Laid Payment/Unpaid Invoices

But most of the customers will pay late due to which you don’t get the money for what you’ve done on time. This is a serious cash flow problem and can put your business in danger, especially when you need immediate cash to run and grow your company.

Here are some smart tips to avoid late payments from your customers.

• Send your invoices as soon as possible
• Offer discounts for early payments
• Keep your payment terms concise and precise
• Offer multiple ways such as cash, credit cards, mobile payments, etc.
• Charge a fee for customers who pay late
• Ask for upfront or staggered payment
• Be organized and follow up politely
• Automate the invoice and payment process using accounting software

Not Creating Cash Flow Forecast

Not managing and forecasting your cash flow is another serious cash flow issues that can harm your business. Without it, it’s difficult to know how much cash you will need in the coming months to run your business seamlessly.

A cash flow forecast helps you understand the impact of future plans and possible outcomes so you can take the necessary precaution in the present. Besides, it can help you keep track of overdue payments, plan for upcoming cash gaps, manage surplus cash, and track your spending.

Here are some of the many great ways to accurate cash flow forecasting.

• Establish lines of communication to provide you with important figures and valuable insights
• Don’t confuse cash flow with profit or revenue
• Track and monitor your cash inflow and outflows
• Create several different scenarios to see their impact on future incomes and expenses
• Forecast the cash that you’re going to spend on your business’ operations, late payments, purchasing assets, sales tax, and other non-operating expenses.
• Use cash flow management and forecasting software to view, plan and solve cash flow gaps in real-time

Lack of Profitability

Lack of profit is the biggest reason why more than 30% of small businesses fail. It’s obvious that poor profitability in your small business will lead to poor cash flow problems. Expanding your operation before you’re ready, lack of planning, poor inventory management, poor marketing, too low price, spending too much on unnecessary expenses, and competing in a highly competitive market are some of the many reasons why your small business is not profitable.

Lack Of Profitability

Plenty of companies face cash flow problems due to lack of profitability, despite raising amazing profit, owing to the simple fact that they were unable to generate cash. The best way to avoid such issues to focus on things and indulge in activities that can help you generate more profits.

Here are some top strategies you can adopt to improve your small business profit.

• Remove unprofitable products and services
• Offer new products and services that complement your current offerings
• Boost your brand awareness by taking your reputation online
• Maximize your cash flow
• Increase your conversion rate
• Find new customers
• Streamline management costs

Rapid Growth

If growing your business fast is good for your bottom line, you may also face some serious cash flow issues along the way. When your business is growing quickly, you need to spend more money to run it. You may need to buy innovative equipment, hire more employees, invest in more inventory upfront, or expand your location which could increase your business’ overhead costs and eventually lead to a decrease in cash flow.

Ways To Grow Your Business At Rapid Pace

Here are some ways to solve this problem:

• Be clear about your future business goals and determine your need from there
• Spend on items only when you really need them
• Avoid spending on items that are not helping you boost your business’ cash flow.

Bottom Line

Whether it’s big or small, every company faces a cash flow problem once in their business’ life cycle. Following these above tips will help you identify problems and solve cash flow gaps in your small business. It’s recommended to use innovative cash flow forecasting software so you can predict your future cash flow and take better financial decisions.