The 5 Most Common Problems with Cash Flow (and How to Correct Them)
If your business lacks cash, you won’t be able to succeed.
Cash flow is imperative for any business, and it’s vital to ensure you correct any cash flow problems – ideally before they even reveal themselves. This way, your business can remain healthy, strong, and well-positioned for the future.
From this article, you’ll learn:
- The most common problems with cash flow
- Action steps you may take to correct them
- Tools you can use to manage your cash flow
The Common Problems with Cash Flow
Let’s begin with the essentials. When we think of cash flow, we have to consider it the sum total of money received and money spent to keep a business in operation.
Thinking about it on a more granular level, though, is to consider cash flow a combination of:
- Money Received – The sum total of operating revenue (selling goods and services) as well as new funding (equity investments, etc.).
- Money Spent – These include your operating costs (like space, payroll, and more) as well as repayments and acquisitions.
A positive cash flow is one where the money you’re receiving for your goods and services outweighs the cost of producing and managing them. It’s as simple as that.
That said, even though your cash flow is critical, many small business owners forget this and fall into some very familiar traps. So, let’s explore some of those most common issues with cash flow and what you can do about them…
Your Cash Flow is Disorganized
One of the biggest challenges of cash flow doesn’t even have anything to do with cash flow at all! It all comes down to how you organize your finances and the role that plays in your cash flow’s success.
If you lack the ability to track, plan, and budget, you leave yourself out in the cold in terms of what you know (and what you don’t) about your cash flow.
So, how do you solve it? Well, you begin prioritizing the data surrounding your cash flow. This could include things like:
- Filing your taxes earlier
- Building proper budgets
- Using apps to monitor your finances
- Organizing receipts in a more streamlined way
Basically, the first and most common problem with cash flow is that people don’t know how to make sense of it. If you organize your finances, you’re one step closer to correcting it.
Your Cash Flow is Inconsistent
The important thing to remember that, for your business, your cash flow will most likely never be completely consistent. Especially as a small business owner, it may fluctuate and change over time – this is important to know.
When you approach those inconsistent times, though, it can be damaging to your business. In fact, some businesses never make it out of those low periods.
That’s why you need to consider the ways you can mitigate the risks of cyclical cash flow. Take, for example, some of the following tactics:
- Cutting Costs – To help make your products and services profitable on your terms.
- Charging & Billing – If the prices your charging are keeping up with your needs.
- Prioritizing Customers – Identifying opportunities to keep customers around for longer and interested in your other services.
- Invoicing Improvements – The way you invoice can help balance out the risk of slow periods – charging deposits upfront and more to help get money in sooner.
- Borrowing Funds – You may need to identify when you may need to take our a loan to help sustain your business during down cycles.
It may not matter how hard you work, or the product you have, there will come a point where your business may fall short on expectations.
In times like these, it’s better to expect it to happen and to fix it accordingly.
You’re Not Projecting Your Cash Flow
One of the biggest problems that business owners face is not knowing how much cash flow they are going to have in the future. This limits their ability to make decisions, investments, and to set a direction for the future of their company.
That’s why cash flow projections are incredibly important to the success of any business. Cash flow projections can give real insight not only about where your money is headed, but where it’s coming from and where you might end up falling short.
Using a projection, you can:
- Identify shortfalls or slow periods
- Ensure you have enough cash on hand
- Can identify periods of growth for investment
Using a forecast, you can see when you will run a deficit, and when you’ll have a surplus. You will also get a pretty strong idea of how much money your business will need over the next year to remain safe – which can play a role in budgeting.
Projections are not simply about problems, though. They can also identify when you have the free cash necessary to grow your business. It can identify the periods where you will have more on hand than you need, and where you can put it to watch it grow.
Using Board for Cash Flow Issues
We created Board for one reason: to help small business owners take control over their finances. If you’ve had trouble with cash flow in the past, this is the solution you need.
Everything from budgeting, setting goals, keeping track of receipts, and projecting into the future, all in one handy platform. Board is the business solution you can use to understand your finances and make decisions based on them.
Cash flow is essential to your business, which is why we made it a prominent piece of the puzzle for Board. If you want to get a handle on how it works, and how it can help you, we recommend you try it.