Common Cash Flow Problems + How to Solve Them

Common Cash Flow Problems + How to Solve Them

An accurate cash flow forecast will help you to spot potential problems before they arise. Although working on your products and services is essential for future growth, the most important thing to bear in mind is the timing. Putting money into developing a new product line or service, or launching in a new country, all requires cash up front and won’t have immediate returns or could be slower than you common cash flow problems had predicted. However, in other situations, cash inflow will increase in the short-term if a business receives a loan and will decrease as the business pays it back. If there is not enough cash inflow during the repayment period to cover payments and other business outlays, that is a problem. Cash flow is an integral financial metric for businesses, and it can often be a challenging one to manage.

All overhead expenses add up; even minor adjustments on a grand scale will save you money and result in a noticeable increase in your cash flow without impacting performance. Although growth is extremely exciting, discipline must be exercised to decline large contracts if your forecasted cash position cannot cope or you don’t have a cash reserve or access to finance. Finally, discontinue products or services with low-profit margins, and explore thedevelopment of a complementary product line or service to be upsold alongside your main product. To put it simply – you need to get your invoices out lightning fast, keep on top of your invoices, make payments as easy as possible, and reduce risk by being selective when it comes to credit.

Shrinking profit margins

If most of your sales are paid back slowly, then you’re simply scaling up the problem. This situation will quickly become unsustainable without a large cash reserve and negatively impact your cash flow position. Cash tied up in outstanding receivables is one of the biggest cash flow problems you can have. According to Xero’s figures, almost half of all invoice payments made in 2021 to small businesses were paid late. And if payments are late, it means your ability to invest in yourself gets delayed and you may miss opportunities. It’s common to build a cash reserve that covers about three months of business expenses – create the budget from your current and forecasted expenses to determine the amount needed.

Your business must be prepared for shifts in customer behaviour if you wish to circumvent future cash flow problems. While growth is often a good thing, growing too fast can often result in cash flow problems that impact how your business performs. With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there’s continuity from sales to services to support. Because you need a sales forecast to create a business plan, make sure your estimates are based on past data if you have it. Break down your sales into unit parts, and use averages to keep your sales estimates realistic.

Small Business Cash Flow Problems and How to Solve Them

When all your cash is tied up in managing inventory, overheads, unpaid invoices, and operational costs, you wind up with nothing left to pay the bills. If you’re denied  a business loan or a line of credit, your best move is to find out why and work to remedy this issue. It can take time to build credit, but you can also try to cut costs to increase cash flow or make changes to your business plan to make it stronger. Another common cash-flow problem is inaccurate and inefficient accounting and slow invoice payments.

• While revenue and profits signal strong financial performance, cash flow drives growth.
• If you don’t manage your expectations, you can end up spending cash you haven’t yet earned on more stock or business growth and have none left to pay the bills.
• Although working on your products and services is essential for future growth, the most important thing to bear in mind is the timing.
• As you make more money, you also have to spend more money to run your business.
• To help you do this, 15 members of Forbes Business Council explained which areas business owners should closely examine to uncover the root of cash flow problems.
• While cash flow may seem straightforward, it’s not uncommon for finance leaders to struggle with it.

Don’t be afraid to experiment with your pricing strategies to find that sweet spot. If you offer a unique product or service and have a great reputation, you may be surprised at how much your customers are willing to pay – your perceived value will support your price point. This article will explain what cash flow problems are, investigate the common causes of cash flow issues, and look at effective ways to deal with them.