As business visionaries, we feel fear of running out of money and having cash flow issues. The absence of an “anticipated check” is scary, yet the rewards of having your own business offset those risks.
Saying this doesn’t imply that we should set this fear aside. Indeed, a shortage of funds is the second most reason for business failure. Fortunately, you don’t need to be a part of this problem.
Focusing on your cash flow and handling difficulties is an extraordinary method for ensuring that you remain in business. Let’s look at how you can be proactive in keeping up with proper cash flow for your business.
What is cash flow?
One of the most vital aspects of building a sound and healthy business is a good cash flow. Reports often cite that cash flow problems contribute to failure in small businesses. Hence, cash flow plans shouldn’t be an afterthought.
To begin with, it’s helpful to think of some significant cash flow problems for SMBs and how you might mitigate them.
4 common cash flow problems
Partial or Delayed payments
One of the biggest challenges is outstanding payments SMBs face in terms of cash flow. A study highlights that 60% of invoice payments are delayed. This is a real cash flow problem since you’ve accomplished the work, yet you haven’t received cash for the same. Additionally, you lose profits; also, you’re out of whatever it costs you to complete the job.
Over 30% of SMBs are adversely affected and spend an average of 15 days to meet the payments alone.
Moreover, if you offer partial or credit payments, it ties up your cash. You permit your customers’ instalments, especially for large purchases, maybe a smart strategy for driving sales. But it will hamper your cash flow.
The most effective method to settle it:
- Take your payment, and even a deposit can help.
- Send your invoices soonest possible to avoid delays.
- Opt for automated payment updates on your invoices to your customers/vendors.
- Charge a fee for late-payments and offer discounts for early payments.
- You may run a credit check on your customers first (optional).
- Give multiple payment options.
- You can sign up or purchase software where customers and their banks can mail physical checks.
Delayed payment posting
When the payment gets successful from the customer end, it doesn’t mean you have direct access to that money. A delay is evident between the time the payment was made and the moment the cash is credited to your account(s).
This payment processing time is unavoidable, as that’s how banks work. There are a few different ways you can get ready for it and guarantee your cash flow is steady.
How to solve it:
- Provide multiple cash payment options.
- Boost cash payments with an exciting discount or freebie.
- Integrate your bank account with your invoicing software so that when a customer pays, you receive money more quickly.
- Take your payments through credit cards to make purchases from your customers.
One review led by Staples observed that three of every four SMBs with failing or struggling businesses believe disorganization has led to a loss in effectiveness and productivity n their business operations. Likewise, almost 40% aren’t “good with numbers.”
This is one of the real challenges when it comes to maintaining good cash flow. You won’t know the actual status of your business if you’re not tracking, budgeting, planning, and forecasting the business plans.
How to tackle it:
- Make a statement of cash flow to forecast increases and declines.
- Plan out your next year’s taxes and start coordinating your documentation now.
- Choose implementation of a financial tracking tool. This helps you to reduce the risk of human error and automate some of the processes.
- Utilize a receipt scanning application to snap a photo of receipts with your mobile and upload them to your record.
While in some cases, you need to spend money to bring in cash, and here arises the issue of fund management. When your overhead is getting out of hand, it’s paramount to dig into where the costs are reaping so that you can reduce (or even eliminate) the most significant expenses.
The most effective method to tackle it:
- Put the repetitive tasks that your earlier hired people used to do into action.
- Map out a business strategy and monetary milestones you want to meet before you make various investments.
- Screen your continuous costs and categorize them. See which ones consume the most money and find out alternatives to reduce those first.
- Go paperless. On an estimate, businesses spend $80 per employee on paper every year.
Indeed, even with the most careful planning, there will be times when customers don’t pay on time, and you end up in a tight cash flow spot. To avoid such situations, you’ll require a Plan B: either a cash reserve or access to a loan or credit. To solve this, borrowing money isn’t the solution to ongoing cash flow problems, but it’s good to know that you are prepared for the toughest situations and your cash flow doesn’t mess up.
To know more about such facts relating to various industrial segments, log on to ZapInventory and get to know exactly what you need to know.