3 Ways to Solve Business Cash Flow Problems
According to researchers, 82% of businesses fail due to cash flow problems. A cash flow shortage happens when more money flows out of a business than money flowing into the business. That means you might not have enough money to cover payroll or other operating expenses during a cash flow shortage.
As your business grows, you will need to find money to pay for more staff, bigger facilities, and increased production costs. If your business grows rapidly and the growth is largely unplanned, you’ll risk overtrading by not having enough working capital to fulfill your expanding orders.
Not having enough working capital in the critical time between investing in growth and realizing the profits is a common problem for businesses experiencing rapid expansion. It can easily ruin a business. However, there are several strategies for dealing with short-term cash shortfalls.
Create a cash flow budget
A cash flow budget or forecast is an estimate of how much money you expect to see flowing in and out of your business during a specific period of time. By creating this, you’ll be able to see which months you can expect a cash-flow deficit and which months you can expect a surplus. You’ll also get a pretty good idea of how much cash your business will require over the next year or so to survive. A cash flow forecast is also a great resource to help you make important decisions, such as when to make a capital expenditure or whether or not to cut an expense.
Consider borrowing options
Cash flow shortages occur when more money flows out of your company than into your company. One way to solve the problem is to find a way to bring money into the business. You can do this with a business loan or a credit card advance. Before you take on business debt, however, be sure you understand the interest rates, have considered all other options, and are not making a decision that will simply kick the problem down the road to be addressed later. If your business has an intrinsic problem causing your cash flow crisis, then taking on debt will only put a band-aid on the problem and make the problem worse in the future.
If you find yourself constantly coming up short when it comes to cash, it might be time to take a hard look at your expenses. Expenses can balloon out of control when you’re not paying attention. Start by sitting down and looking at all of your fixed expenses. What can be cut? Are there expenses that you can reduce without a large business impact? Find those expenses and see how removing them will affect your cash flow budget.
There are many ways to solve business cash flow problems. Some solutions involve being smarter about invoicing and getting customers to pay quicker, while others involve cutting expenses. Each solution can help with overall cash management and improve the ability of a business to assess how much cash they have on hand and how much cash they will need in the short term.
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