Solving Cash Flow Crisis for Small Business Owners

According to some studies, more than half of the businesses fail due to poor cash flow management. Small businesses with a lack of free cash flow are likely to accumulate more debt and even bankruptcy. This is what basically happens in the recent corporate bankruptcies. Due to the pandemic and lack of sufficient cash reserves, businesses accumulated tremendous amounts of debt, leaving them with no choice but to shut down.

The first thing you need to understand is that cash flow management isn’t primarily about expenses and revenue. It’s about the “movement” of cash throughout your company. However, with small and growing businesses typically focusing on profits, achieving positive cash flow can be challenging. Having cash flow issues? Here are some tips on how you can solve them.

1. Adjust your inventory

One of the most common causes of cash flow problems is having items in the inventory that are not selling, like pancakes. If you’ve got tons of these items sitting in your inventory and not being converted into money, selling them for less might do. Offer them at a discounted price so you can offload your inventory. And the next time you fill up your inventory, invest more into purchasing items that are guaranteed to be converted into sales.

2. Improve invoicing process

If you’re one of those business owners who think that getting an accounting system to invoice your clients isn’t a big deal, it’s time to change that mindset. Investing in good accounting software won’t only streamline your invoicing process. It can also make sure that there will be no errors. Costly errors or delays in your invoicing can lead to huge cash flow issues. By automating your process, you can deliver a faster invoice to clients and increase data insights and clarity, helping you prevent or solve any cash flow issues.

3. Consider borrowing money

If you got more cash flowing out, you might consider bringing in money into your company. You can either get a credit card advance or a business loan. But before acquiring such debt, it’s best to be critical of the interest rates. Discuss the plan with your business accountant and review if this is an ideal solution for your situation. The last thing you want to happen is to have an additional financial issue. If you have already got a high-interest credit card debt on your hands, you can consider refinancing. For instance, you can obtain a business line of credit with an interest of as low as 6% or 7%.

4. Slash your expenses

Cutting back on operating or business expenses is not as simple as crossing out items on your grocery list. Have your trusted business accountant review your entire expenses on things like inventory, labor, or marketing. Such a professional will make it easier for you to assess what expenses are unnecessary that slashing them won’t harm your operations. During a cash flow shortage, you must scrutinize every single dime that leaves your account and assure your money is going towards things that keep your business operation.

5. Encourage clients to pay faster

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Another effective way to solve (or prevent) cash flow problems in your small business is to make it easier for your clients to pay faster. Encourage them to do so by readily giving them simple and convenient payment methods. For example, you can give your clients the freedom to pick their payment day, as long as it suits your revenue cycle. Some clients would prefer to make payments at the beginning of the month; others would prefer to do it mid-month.

You can also choose to set up an auto-billing in which the amount due will be charged on their credit cards or drafted from their bank accounts. If that isn’t ideal, you can start accepting online payments to give your clients more convenience.

6. Negotiate your payables

During a cash flow crisis, reduce or delay the amount of money going out can be beneficial. Get in touch with your current vendors and ask if delaying your payments would be possible. Vendors you’ve been a client for many years are likely to help you during a crisis and offer you flexible options. If you’re luckier, you might acquire a reduced obligation or some leeway from utility providers. However, understand that not every vendor would be willing to budge.

It’s important to acknowledge that cash flow acts as the lifeline of your business. By making an effort to maintain a positive cash flow, you’ll be able to cover your capital and operational needs with no hassle. There will be no more poor collection practices, inadequate savings, poor budgeting, or unplanned expenses.

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