Every business experiences cash flow problems at some point and solving the cash flow problem should be a priority. While there are a number of possible causes, such as unexpected expenses or late payments from customers, the end result is always the same: a shortage of cash on hand.
This can lead to a number of serious issues, such as delayed payments to suppliers, missed payroll deadlines, and even bankruptcy. Fortunately, there are a number of steps that businesses can take to solve their cash flow problems
Tips to Solve Cash Flow Problems
Here are a number of tips to solve cash flow problems within your business:
Use a Monthly Business Budget
A budget is a formal statement of a company’s income and expenses for a specific period. A business budget helps companies track their actual results against their financial goals. A monthly cash flow forecast is an estimate of the amount of money that will flow in and out of a business each month. It is important for businesses to create and maintain accurate budgets and cash flow statements in order to make informed financial decisions. Without this information, it would be difficult to know how much money the company needs to save in order to cover overhead during lower-revenue months
Access a Line of Credit
Having access to cash flow is one of the most important aspects of running a successful business. However, for many small businesses, having a limited cash flow can be a major obstacle. One solution to this problem is to set up a line of credit. A line of credit functions similarly to a credit card, in that it provides you with funds that can be used in times of need. However, unlike a credit card, you will only be required to pay back the funds that you actually use, plus interest on the outstanding balance. This makes a line of credit an ideal solution for businesses with irregular or seasonal cash flow.
Invoice Promptly to Reduce Days Sales Outstanding
As a business owner, you know that cash flow is essential to keeping your company running smoothly. However, waiting for clients topay their invoices can put a strain on your finances. Fortunately, there are options available for businesses that need to accelerate the receivables process. One option is to offer early payment discounts to clients. This can incentivize them to pay their invoices sooner, freeing up much-needed funds. Another option is invoice factoring. With this financial product, businesses sell accounts receivable to a third-party factoring company at a discount. The factoring company then advances up to 90% of the invoice amount upfront, and takes responsibility for collecting payments.
Stretch Out Payables
Extending the payment cycle of your suppliers is a common way to obtain cheap financing. With this strategy, you simply choose to pay certain bills past their due date. However, it’s not a long-term solution, as it can impact your credit and sully your relationship with suppliers.
There are two ways you can protect yourself should you decide to stretch out payables. For one, you can negotiate the due date to a date on which you are confident you can pay. Or, you might want to reconsider your payment agreement altogether. Some service providers will allow for annual or semi-annual payments instead of monthly. Paying annually upfront might even net you a discount. In any case, be sure to communicate openly and honestly with your suppliers about your financial situation and payment plans. With a little bit of creativity, it is possible to find a win-win solution that meets everyone’s needs.
Overspending can quickly put a business in the hole, and many businesses make the mistake of cutting essential costs like inventory, marketing or labour first in an effort to save money. However, this can actually damage the business more in the long run. Instead, it’s wiser to focus on nonessential costs first, such as landscaping or housekeeping. These are expenses that can be easily cut back without affecting the core operations of the business. Once nonessential costs have been reduced, you can then audit your overhead expenses, such as rent and utilities. See where you can get better rates or renegotiate contracts in order to further reduce expenses.
When it comes to pricing products and services, it’s important to make sure you’re not selling yourself short. Charging too little can negatively impact your margins, making it difficult to sustain your business in the long run. To avoid this, take a step back and audit your products and services to determine the fully loaded cost of delivering them. With that cost in hand, you can determine whether you are charging too little and hurting your bottom line.
Of course, raising prices can be a delicate task. Many businesses worry about alienating customers with a price hike. However, research shows that customers are more likely to accept a price increase if it comes with an improved experience. According to Price Waterhouse Cooper, 43% of consumers would pay more for greater convenience, and 42% would pay more for a friendly, welcoming interaction in-store. When pricing your products and services, it pays to test things out and see what works best for your business.
Upsell and Cross-sell
Most business owners are always looking for ways to increase their sales and, in turn, their profits. Selling more products or services is a great way to achieve this, but it’s not always easy. One way to increase sales is by upselling or cross-selling to existing customers. Upselling is when you offer a more expensive product or service to the same customer. For example, if someone buys a basic gym membership, you could upsell them on a six-week training package. Cross-selling is when you offer a different product or service to the same customer. For example, if someone buys a dress from an online store, they might be shown other items under the heading “You might also like…”.
Both of these techniques can be effective in increasing sales, but it’s important to make sure that you don’t come across as pushy or sales-y. The goal is to keep existing customers happy and buying from you, so try to make any pitch natural and not overly forceful. If you can do that, then you’ll be well on your way to boosting your cash flow.
Accept Credit Cards
Credit cards have become a staple of modern life, and there are good reasons why. For businesses, accepting credit cards translates to quicker payments and fewer bad debts. It also improves the likelihood of purchases, as a Square survey reported that 35% of consumers would shop elsewhere if a business didn’t accept credit cards. However, credit card companies typically charge a fee to merchants that use their service, so you’ll need to weigh those costs against the benefits of quicker payments. Nevertheless, the advantages of accepting credit cards generally outweigh the disadvantages, which is why small businesses have increasingly come to embrace this payment method.
Accept Online Payments
There are many benefits to accepting online payments for businesses of all sizes. Perhaps the most obvious benefit is that it is more convenient for customers, who can now shop from the comfort of their own homes. In addition, online payments can help businesses move inventory more efficiently. For example, a store that sells baked goods can bake to order and ship nationwide, rather than having to maintain a storefront and throw out unsold goods each day. Accepting online payments can also help businesses save money on credit card fees and other transaction costs. Overall, there are many advantages to moving to an online payment system for businesses of all types.
Maintain a Clear View of Inventory
If you own a product-based business, inventory management is a critical element of success. Too much inventory ties up cash flow and can lead to waste, while too little inventory can result in lost sales. An inventory management system that integrates with your accounting software can help you maintain a real-time view of your stock levels, allowing you to make informed decisions about production and sales. Such a system can also help you track how much you paid for each product, how much you actually need at any given time and more. As a result, investing in an inventory management system can be a wise decision for any product-based business.
Cut Costs by Identifying Waste
As a small business owner, it’s important to be strategic about your spending in order to stay afloat. One area where you may be able to cut back is packaging. If you’re using branded bags or adding unnecessary materials like tissue paper, it may be time to slim down your packaging. This will save you money and reduce waste. Another area to consider is staffing. If payroll costs are becoming a drain, try to cut back on overtime and excess staffing. Instead, focus on your top-selling products and make sure they’re well-stocked. By being strategic about your spending, you can keep your small business running smoothly.
Improve Profit Margins with Vendor Discounts
When it comes to vendor relations, it pays to be a good customer. By definition, a good customer is someone who buys products or services from a company on a regular basis and pays their invoices on time. In return, good customers can expect to receive favorable treatment from their vendors. This might take the form of discounts, extended payment terms, or free shipping. In some cases, vendors may also throw in extra products, especially if the customer is buying in bulk. Of course, vendor relations are a two-way street, and good vendors should also be responsive to their customers’ needs. But when it comes to getting the best possible deal, being a good customer is always worth considering.
Invoicing is an essential part of running a business, but it can be easy to let it fall by the wayside. After all, there are only so many hours in the day, and sending out invoices can seem like a low-priority task. However, the more promptly you send out invoices, the quicker you’ll get paid. And, in turn, you’ll benefit from healthier cash flow. If invoicing is consistently lagging, it may be time to invest in accounting management software. The best accounting software helps you ensure accurate, timely invoices while avoiding potential errors from manual bookkeeping. You’ll have a dashboard with a real-time view of all transactions and an electronic trail of all related records, which will come in handy when it’s time for auditing. In short, investing in accounting software can save you time and hassle in the long run – not to mention help you keep on top of your invoicing.ƒ
Hopefully our list of how to solve cash flow problems may come in help full if your business is suffering from this issue, the best piece of advice we can offer for anyone who’s company is suffering from cash flow problems and wishing to solve the issue is to seek advice early from a finance professional.
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.