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6 Cash Flow Challenges for Small Businesses

Posted by IBS Marketing on Aug 19, 2021 2:33:35 PM

When you’re thinking about boosting your business’ bottom line, here’s the real bottom line: without adequate cash flow, business will fail. Cash flow is more than just keeping enough cash in the coffers, it’s about how much foresight and control you practice over your company’s finances over the long-term, even when business is hard to predict.

Businesses of all sizes struggle each year to manage cash flow. Here are a few of the biggest challenges businesses face, and the steps you can take to tackle them.

  1. Not Monitoring Receivables

Knowing how much your business maintains in outstanding receivables is the first step toward better cash flow management. According to some numbers, on average, small businesses have about $20,000 in receivables at any given time. If that answer surprises you, you may need to take a closer look at your own A/R department.

While some businesses may outsource A/R to an outside firm, like Interstate Billing Service, this is not an excuse to ignore the financials. Smart business owners keep an eye on all money going out (and coming in), so they never get blind-sided.

  1. Lack of Payment Processes

It’s easy to plunge into business without taking the time to implement processes. A process for payments is crucial for expediting payments and keeping customer service standardized and consistent.

Processes also protect business owners. Some businesses, especially those just starting out, can be intimidated by asking for payments. Running a business, however, is no time to get shy. To combat any passive tendencies, implement payment processes, and then follow them, without getting personal feelings involved..

The best way to standardize processes? Automate, automate, automate. The more that happens automatically, the more you can focus on more important aspects of business.

  1. No or Late Payments

While payment processes are crucial, and will save you when the going gets tough, unfortunately, they aren’t a golden solution. Even with all touch points of the payment process fully optimized with notices and reminders that walk customers through each step and keep payments top of mind, there will still be late payments.

Excuses for late payments are numerous, but your answer should remain the same. If you charge late fees or interest, keep this the same across the board (unless the mistake was made on your end or because of a third party).

One way to minimize excuses is to present the solution before there is an issue. For example, sending alerts and reminders or providing ways to pay electronically offers more customers convenience and can speed up an otherwise slow payment process.

Another fail-safe option is to consider asking for payment in advance of products or services rendered.

  1. Managing Expenses

Signs your business isn’t managing expenses well: late payment reminders from vendors; overdue rent notices; or employee paychecks that bounce. When the day comes that any of the above is happening, cash flow has become a major problem.

There are many reasons to get a handle on expense issues before they affect your employees. Not only does it diminish trust in your business, word gets around, and may affect your ability to hire and retain new talent in the future.

While it’s a tough position to be in, if you’re paying too much on staff, it may be time to think about lay-offs, especially if it’s in the interest of the greater business.

  1. Staying Within Budget

It’s common knowledge that you have to spend money to make money; however, taking this adage too much to heart can be damaging — and new business owners are notorious for overspending, especially in the early phases.

Consider businesses expenses and weigh them accordingly, just as you might with a personal budget. Is the annual all hands meeting off-site absolutely necessary? Do you need to provide full catering? Figuring out where and how much to cut corners is crucial, and staying inside a frugal mindset will safeguard against future overspending, even when business is thriving.

  1. Handling Emergencies

Just as personal finance experts generally advise individuals to keep an emergency fund on hand to ride out layoffs or illnesses, it’s a smart idea for businesses to have a cash cushion to help with business emergencies — and there will be tight spots.

How much to keep on hand? It depends on the business, but building up enough reserves to cover six months of operating expenses is a good starting point to set up a fund that can give you a leg up on the competition.

Finding other avenues of bolstering cash flow adds extra insurance, and taking out a loan is always an option if you have good credit. However, think ahead. During a tight spot, you won’t want another payment with interest piling up, and banks aren’t likely to loan money to businesses that can’t afford it.

What has been your experience managing cash flow for your business? What solutions have you tried, or how did you solve your biggest cash flow issues?

Topics: Business Management

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