Having sufficient cash flow is critical to having a healthy and growing business. Unfortunately, cash flow problems, according to a study by U.S. Bank, contributes to the failure of 82% of small businesses. Thus, it is critical to avoid cash flow problems, to be swift to recognize them, and quick to fix them. Essentially, when your expenses exceed your cash, you have a cash flow problem.
Understanding Cash Flow
It is important to be knowledgeable about good cash flow management practices and to be prepared with the right strategies to deal with your company finances. Consider these cash flow problems and the solutions to address them:
- Underestimating startup costs. Develop realistic estimates of startup costs and then create a detailed budget with some room to deal with overages and unexpected costs.
- Expecting too much revenue too soon and profitability too quickly. Make sure your revenue and profit estimates are as realistic as possible.
- Not creating a cash flow budget. Based on your estimated expenses and revenues, develop a good cash flow budget and monitor it constantly.
- Business growth that is too rapid. Don’t attempt to grow more quickly than your resources allow.
- Collecting receivables too slowly. Bill clients quickly and incentivize prompt/early payment.
- Expensive debt. Avoid expensive debt and refinance costly debt when possible.
- High operating expenses. Monitor all expenses vigorously and manage them aggressively.
- Excess inventory. Fine-tune inventories to keep them as low as possible.
- No/poor forecasting. Develop solid expense and revenue forecasting practices.
- Poor accounting practices. It is critical to have great accounting practices so that you know where you stand financially. Use your financial statements consistently well.
- Employee theft. Develop good practices to prevent employee theft.
- Seasonal demands. Anticipate and prepare for seasonal ebbs and flows.
- Poor gross margins. Plan your margins carefully to deliver positive cash flow.
- No cash reserves. Get financing assistance so you have a cash reserve.
Seek Expert Financing Assistance
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