5 Cash Flow Issues For Small Businesses

cash flow issues
Are You experiencing these cash flow issues? Image: Flickr

Are you experiencing cash flow problems? Don’t let this ruin you. 

Cash flow is the money that flows in and out of your business. You typically measure it over set periods for instance, monthly, annually, or quarterly.

A large number of small businesses encounter cash flow issues at some point in their dealings.

Fortunately, you can prevent most cash flow issues with some preparation and the appropriate strategy.

Check out some of the cash flow problems that could be affecting your business.

Excess Overhead Expenses

Overhead costs are the expenses of operating a business though they aren’t related to selling a specific service or product. Examples include rent and utilities and although they are important to your business, they could easily get out of control relative to your business’s revenue.

High overhead costs are especially challenging since they’re persistent. The solution to this involves auditing your expenditures and cutting where possible.

However, take care not to cut excessively, as this could affect your business. If you can’t cut back, consider cheaper alternatives.

Rapid Expansion

Most people wish to grow their business, however growing too fast can at times cause cash flow problems, resulting in potential business damage. To fix this type of problem, you could consider accessing a credit line from the bank, for instance a short-term loan or overdraft.

In numerous instances, this option is viable because financial institutions are eager to lend if you can present a letter of intent or draft service agreement.

Once your client makes payments, you can pay your debt. This implies that you merely have to pay bank interest for the period you actually require the money.

A Very Huge Order

Small businesses frequently regard a very huge order from a choice customer as an indication of success. Huge orders turn into huge deliveries, which generate considerable profits provided you have the resources to meet the order.

If you lack the resources, you could take the order though you risk experiencing cash flow issues. Alternatively, you could let your competitor take the order.

If you’re not careful, an extremely huge order could affect your business considerably. One option involves getting term credit from vendors.

While negotiation can be difficult, it’s possible if your payment and production cycles are short enough. You could also consider purchase order funding, which helps pay for the supplier costs associated with an order.

Bad Debts

Bad debt arises when you offer a service or sell a product to a client who doesn’t pay. These debts can be crippling especially for new businesses and can arise easily if you don’t implement a suitable credit control system early on.

A credit control system describes the process a business implements to collect cash owed by its clients.  The solution to this issue involves reviewing your clients’ commercial credit before extending payment terms.

It’s prudent you offer terms only to customers who maintain a solid record of payment and good credit. If you realize a customer has a poor record and you wish to take him or her on as a customer, you can request an upfront deposit.

Profit Problems

A lack of profit will ultimately result in the lack of cash. The time it takes for a business to run out of money depends on various factors.

However, no business can maintain indefinite losses. For instance, a business can still survive on cash reserves, possibly from former profits or cash injections for instance bank loans.

However, a business that experiences consistent losses will eventually exhibit the depletion of cash reserves and business failure. If you’re losing cash, it’s necessary you unearth the origin of any losses and handle them as soon as possible.

Final Thoughts

Small businesses usually face any or more of these cash flow issues, especially when starting out. These issues can be serious, possibly threatening to shut your business down. Nevertheless, paying keen attention to these problems and developing solutions will help ensure your business thrives.

Dailey Bookkeeping Services is a Xero Certified Bronze Partner and a QuickBooks Online Certified Advisor, so if we can help you with your cash flow needs, just give us a call, we would love to help you!  The owner, Jacqueline Dailey is a Certified Public Bookkeeper, an Advanced Certified QuickBooks and QuickBooks Online ProAdvisor, a Sleeter Group Certified QuickBooks Consultant and a Xero Certified Bronze Partner. We work remotely so we can work with any company located in the U.S. If we can help you with this process or provide you with custom reporting, please give us a call. If we cannot help you, we will refer you to someone who can!  Feel free to visit our website at http://www.daileybookkeeping.com.

 

 

 

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