7 cash flow problems and solutions for small businesses

Keeping a cash buffer, like a rainy-day fund that your business can access in an emergency, can also be a good practice, in case a piece of key machinery breaks down or a big invoice becomes overdue. That way, the company generates enough cash for the materials and workers needed for the job. By leasing vehicles, computers, and other business equipment, you can access the latest features and avoid tying up cash. GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments. Here are additional steps you can take to help protect against common cash flow problems.

• You also need to think about the best way to avoid cash flow problems of money in and out of the business, aka, the cash flow.
• Creating a cash flow budget can help you to plan for potential cash flow problems and potential solutions for dealing with them.
• Cash flow forecasts provide a roadmap for your business finances, enabling you to plan for future expenses and investments and anticipate potential shortfalls.
• Do you have equipment you no longer use or inventory that’s becoming obsolete?

Instead, successful companies need agility, adaptive strategies, marketing efforts, and growth plans that conform to the realities on the ground. A strong cash position is a common mechanism used to maintain a business’s flexibility. “Cash flow” refers to the net funds moving into and out of your business during a set period.

Solutions for expensive borrowing

A low ratio might indicate it’s time to reassess your payment terms and policies. Many businesses invoice their clients and receive payment after the service or product is delivered, so it’s normal to have some unpaid invoices at any given point. The trouble is that until your customer pays, you don’t have their cash available to you to meet your expenses. Business expenses can include things like payroll expenses, loan payments, lease payments, inventory costs, and landscaping. To get a list of all expenses more easily, you can review your business bank statements to identify outflow of funds. Locking in an investment or loan to fund your business is always great for capital.

One of my friends worked in the accounting department of a medium-sized business where a managers was notorious for stashing checks to vendors in his desk drawer. When a vendor complained loudly enough (or long enough), he’d pull out the check and pay them. Small cash flow problems can quickly escalate and cause bigger problems if you’re not careful.

Varied payment terms

If you don’t have the time or expertise to handle your own bookkeeping (and not just once a year when taxes are due), consider using a bookkeeping service to keep your finances up to date. As your business grows, you may delegate spending decisions to employees. If you’re not careful, you may wind up incurring expenses your business can’t afford or doesn’t need. Create workflows to approve expenses, without making the system so cumbersome that employees don’t get what they need.

Depending on your circumstances, a few creative changes may help get you back to positive cash flow. But before you apply for a cash-flow loan, a working capital loan or any small-business loan, for that matter, compare your options based on factors including terms, APR and what you qualify the best way to avoid cash flow problems is for. As you make more money, you also have to spend more money to run your business. Your overhead could increase because you’re outsourcing more, you need to hire more employees, you have to upgrade tech tools to higher plans, or you need to invest in more inventory upfront.

Cash Flow Problems Every Business Should Avoid (How to Solve Them)

When it comes to determining how to solve cash flow problems, the answer will be different for each business. For some companies, chasing up on payments more effectively will be enough. With cash flow forecasting, you can get a birds-eye view of where the problems lie to find appropriate solutions. Management accounting focuses on using your business’s financial reports to forecast cash flow, improve cash flow, and completely avoid cash shortages. Monitoring and improving key performance indicators, such as your company’s days sales outstanding and profit margins, can help you avoid cash flow shortages altogether.

• Business owners should consider using an inventory management system to balance their inventory.
• Creating and reviewing both a weekly and monthly cash flow budget can help you clearly see your business’s overall financial condition.
• Particularly poor inventory management in the form of owning too much stock can lead to poor cash flow if you have too much capital tied up and not enough to cover your costs.
• Just because you’ve received a payment doesn’t mean you have access to that money.