Common cash flow problems and how to fix them
Are you frequently finding that your business is suffering from large gaps in cash flow? Cash flow is the money that flows in and out of your business, and if you’re having trouble managing your fixed expenses and paying your bills each month, your money likely isn’t flowing as consistently as it should be. To get your cash flow back on track, you need to understand the source of the issue.
Top 3 sources of cash flow problems and how to avoid them
- Mismanaging your gross profit: One of the biggest reasons new businesses sometimes encounter a cash flow gap early on is because they are offering too many discounts on their product, or they’re not charging enough to earn a profit. If your customers are responding well to the promotions and you don’t want to raise the product price, consider looking at ways you can lower your costs and thus increase your profit.
- Not collecting receivables promptly: If your clients or customers are frequently late on their payments, your cash flow will be the one to suffer. To keep the money flowing in more consistently, try techniques like offering a cash discount to customers or change your payment terms to include a deployment fee or progress billing from your clients.
- Large one-time expenses: Significant one-time costs such as moving to a new office or undergoing a company rebrand can cause a gap in your cash flow if you don’t properly prepare. Avoid going into the red by planning to either use internal funds to pay off these charges, or apply for an external loan in advance to help you make ends meet.
We hate to break it to you, but cash flow problems won’t magically fix themselves. If you do find yourself unexpectedly facing one, don’t ignore it. Your best plan is to be proactive and to get in front of the problem as best as you can. If you are upfront about the situation with your suppliers and your creditors before your bills are overdue, most businesses will be understanding if it’s a one-time issue. But remember: whatever you promise, you must deliver. If for some reason you still can’t make good on your promise, be sure to be as communicative as possible before the debt collectors come knocking on your door.
Do you need both a bookkeeper and an accountant? What’s the difference between these two roles? We’ll break it down for you in our next post.