Any business, big or small, suffers cash flow problems at one time or another. A positive cash flow is what makes any small business survive and unstable or negative cash flow can make your business go down. However, identifying the problems timely and engaging a proper business strategy can help you manage cash flow troubles quickly and effortlessly.
Understanding ‘Cash Flow’ is important.
Cash flow in business is generally the money and other money-equivalents that moves in from sales, investments, loan proceeds, sale of assets, investments, etc. and goes out of business as operating costs, direct expenses, asset purchases, etc. Measured over monthly, quarterly or annually, it indicates your small business’s income quality and thus its overall health. Apart from cushioning your financial future, a positive cash flow signals enhanced liquid assets that in turn encourage you to cover expenses, reinvest in business, payback shareholders, resolve debts, etc. On the contrary, a poor cash flow points out to the drop off in liquid assets.
Cash flow problems and practical solutions to avoid them:
High Operating Costs Slow-yielding Invoices
Regardless of particular product sale or service delivery, there exist overhead costs that are crucial for running a business. Utilities, rent, telephone, employee wages, etc. are some of the business expenses, which may weigh more than the revenues produced by business. Such high overhead costs if left unaddressed, can play havoc on your cash flow.
Solution– An attentive look at your existing resources can help you spot unnecessary expenses. Realize that moderation is the key and play caution not to cut down too much, as overdoing can cripple your business. However, if you feel that the present expenditures are vital to discharge your business operations, looking for low-priced options can help while keeping your business unharmed. Therefore, make it a habit to audit your business costs regularly.
With certain big customers asking for 30- day to 90-day term to disburse an invoice, it has become a way of doing business. However, as a small business owner, you cannot manage to await this long you require money more rapidly and. Such slow-paying invoices strap up your money and subsequently lead to cash flow disturbances.
Solution– One approach is to bargain with your customers directly, to pay off early. For example, you can set off early payment discount to a client. Alternatively, in order to perk up your business cash flow, you can use invoice-factoring or microloans. Such an approach gives you an instant access to finances to cover business expenses, in case your clients fail to pay early.
Uphold a healthy balance by avoiding buying in too little or too much inventory, as any extremity can influence your business operations drastically. Moreover, it keeps your money tied up; causing cash flow disturbances.
Solution– Keep an eye on inventory levels to ensure that your goods stay on shelves for a short period. Although challenging, try to have key inventory that is essential to service your clients. In order to deal with supplier expenses and improve cash flow, you can opt for inventory financing or purchase order financing.
Understand that most cash flow troubles come about due to poor business decisions, lack of proper management, and sometimes because of inevitable external factors. Therefore, put into use a good credit management by reflecting on the mentioned cash flow solutions and run your business uninterrupted.