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Learn about three common cash flow problems and how to solve them.
All entrepreneurs have a fear of having cash flow problems, as they rely on the money coming into their business to have a paycheck and stay in business. A lack of finances is the second biggest reason that businesses fail, so it’s crucial to pay close attention to your cash flow and implement solutions as soon as possible. Continue reading to learn about a few common cash flow problems and how to solve them.
Late Payments
Late payments are one of the biggest challenges for small businesses– in fact, one study found that 60% of invoices are paid late. The sad reality is that the smallest companies wait an average of 72 days before their invoices are paid. Of course, this can cause a real cash flow problem, as businesses have completed work without receiving the money on time. Allowing customers to pay in installments is very tricky for small businesses, as it is good for driving sales but bad for your cash flow.
To solve this issue, the best option is to get paid up front (even just a deposit,) send your invoices as quickly as possible, and implement automated payment reminders on every invoice. Some customers may need more incentive to pay on time, so you may want to offer discounts for early payments and charge a fee for late ones.
Disorganization
The majority of small business owners with failing businesses believe that disorganization was a major factor in the loss of productivity. It’s very important for owners to maintain healthy cash flow, as it’s easy to go broke without even knowing. If you are not staying updated on budgeting, planning, and forecasting, you are likely in the dark about the state of your business finances.
To solve the problem of disorganization, small business owners must make more of an effort and create a statement of cash flow to predict surges and declines. Also, you can use financial tracking tools and apps to reduce the risk of human error in accounting tasks.
Rapid Growth
Cash flow problems don’t always come from bad situations! It’s great to have a new business that is growing quickly, but this often comes with a few challenges along the way. While your business is making more money, you also need to spend more money to run the company, resulting in cash flow problems. For example, as your business grows, your team will also need to grow, but it’s best only to hire when you absolutely need to- and only hire one person at a time.
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