‘Cash flow problems’ is a phrase that most small business owners dread having either to hear or to use. There are many different types of cash flow problems that could arise but they primarily come down to one thing: not having enough money available to use when the business requires it. Your cash flow issues may be the result of high overheads, too much non-selling stock, an excess of bad debt, invoices not being paid on time or insufficient profit. Whatever is behind them, there are three simple solutions that might help you move on.
1. Reform your payment processes
One of the biggest issues for many small businesses is not being paid on time. The joint solution to this issue is a) improve your invoicing processes and b) incentivise your clients to pay on time (or early). Automating invoices can reduce costs and ensure that clients receive invoices on time. It also allows you to set up a system of reminders that will automatically go out if that invoice has not been settled – even if you don’t think to do it yourself manually. Automating payments can also make life easier – clients are paying regularly by standing order, rather it being up to you to chase for every payment. Accepting online payments will make it easier for clients to pay on time and you can incentivise clients by offering early pay discounts and applying interest to late payments.
2. Reduce your outgoings
This is the simplest and most effective way to get past cash flow problems. Of course, it can also be the most difficult to achieve. Many business owners go straight for a single, big cost that can be cut to ease up on cash flow pressure. However, this may negatively impact on other areas of the business, such as the ability to produce or purchase. Instead, look for small cuts that can be made – trim the fat, rather than the meat. Cut out any non-essential expenses and see where your numbers lie after that.
3. Alternative financing options
It’s not a sign of weakness in the business to look for financing during moments of cash flow troubles. In fact, it’s what most successful businesses do to ensure that those dips don’t drag them down. This could be establishing favourable credit with your suppliers, looking for a small business loan or opening up a new line of credit. It’s a good idea to look into these options before you get to a point of desperate need so that you have the time and headspace to make the right decision about which option is best for you.