Top 5 Cash Flow Problems Businesses Face and How to Solve Them

Cash flow is the number one thing to get right in business. You can’t keep the lights on if you don’t have money to pay the bills. And when 82% of businesses fail because of cash flow issues, it’s more common than you think.

You can’t afford cash flow problems if you want to set your business up for success. Keep reading to learn the typical cash flow issues and how to fix them.

  1. No Cash Reserves

It’s not enough as a business to have money coming in. If all you do is pay for expenses and invest in growth, you won’t be able to set aside cash reserves. What happens when something happens that requires an expense you can’t pay for?

While investing in growth is not a mistake, don’t do so without growing your reserves. Ensure you have a minimum amount of money in your business bank account to handle unexpected issues.

  1. Late Invoices

Invoices are a must when you sell to other companies. The problem is that those companies will generally pay using net terms. You may not see your payment for between 30 and 90 days.

While this isn’t an issue most of the time, it is when people don’t pay on time. Inevitably, you’ll run into companies that have problems meeting their payment terms. Come up with a way to track unpaid invoices and stay on top of the companies that are late.

  1. Excess Purchases

You probably won’t have a problem scrutinizing large purchases. You don’t make them often, so you do everything possible to vet the need for the purchase. The same isn’t always true for smaller items.

Small purchases can take away much of your net profit if you aren’t careful. You’ll need to invest in business spend management strategies to avoid too many small buys.

  1. High Overhead

You won’t get away with overhead in your business. You’ll need to pay for utilities, software, and other things to keep your business running. The problem is that many services will raise their price over time and drive up your monthly expenses.

However, you don’t have to accept those price increases if you have other options. Contact your vendors regularly to see if you can negotiate a lower monthly rate. If you can’t, start looking at other vendor options to switch to.

  1. Excess Inventory

Yes, it’s a wise decision to carry more inventory than you believe you need. You never know when you’ll get a surplus of demand. You need additional products to meet that demand.

However, there is such thing as too much inventory. Every dollar you put towards your inventory is cash tied up that you can use elsewhere. Keep your inventory levels only as high as needed to preserve your money.

Do Everything You Can to Fix Cash Flow Problems

You can’t afford to get caught off guard in business and not have the cash to deal with immediate problems. Without enough money in the reserve, you’ll suffer from devastating setbacks that put your business at risk.

You need to avoid all the common cash flow problems if you want to see business success. Keep the issues above in mind to make cash flow management easier.

Check out the blog for more insight into managing business finances.

 

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