Running a small business is tough, and cash flow problems are one of the most common challenges small business owners face. It’s tricky to balance the money flowing into and out of your business.
But it’s crucial for your long-term success. Understanding these common cash flow problem examples and how to solve these challenges can keep your company afloat.
How much cash you need on hand depends on your industry. But you might be short on cash reserves if you’re opening a new business or recently made a large investment or purchase.
You must track, budget, plan and forecast to know exactly where your business stands financially. If not? With inaccurate forecasting or bookkeeping practices, you could run out of money without even knowing it.
Cash flow problems cause 82% of small businesses to fail, according to SCORE Association. Knowing how to manage cash flow is crucial to keep your business up and running. Think about this: Cash flow can suffer if you have costly equipment repairs or a natural disaster that impacts your sales.
Business is booming, and you’re celebrating your success. But there is such a thing as growing too fast. Cash flow, for instance, can suffer without proper checks and balances in place as you expand.
Consider this cash flow problem example: If your business grows quickly, so could your overhead expenses like outsourcing, hiring employees, upgrading tech tools or buying more inventory upfront. This can cause your expenses to outpace your income and upset your cash flow.
You know what they say, “You need to spend money to make money.” But sometimes spending can get out of hand. If your cash flow has taken a hit, look at your spending patterns. Is there too much going out of your business?
Your biggest expenses can have the most impact, so look for ways to reduce or eliminate them. Don’t overlook small expenses, either — even small leaks can sink a ship.
Sometimes small businesses need financing for working capital, buying machinery, or hiring more staff. But business loans or credit cards with high interest rates can eat up a company’s revenues and temporarily mask cash flow problems.
Pricing reflects everything you do in your business. It requires research to get it right. Set them too low, and you’ll have low profit margins — and low profit margins cut into cash flow.
Don’t overlook your vendors’ pricing, either. Prices can vary, and you might find a vendor that can offer you the same thing for less.
Getting paid is one thing. Accessing the money is another. Thanks to electronic payment processing, small business owners often see a delay between when the customer makes a payment and when it’s made available to access.
There’s not much you can do about this small business cash flow problem. The delay is part of how banks are set up. Still, you must stabilize your cash flow to maintain day-to-day business operations.
Slow-paying customers can wreak havoc on a business. When customers pay late, you are out the profit and whatever you spent to do the job.
If you’re struggling with this, you’re not alone. Three out of every five invoices are paid late, according to Export-Import Bank of the United States.
It’s no secret that slow sales can cause cash flow problems. Whether it’s seasonal changes, market fluctuations, the weather (if your business relies on foot traffic) or a break in your lead nurturing process, sales challenges come in many forms.
Inventory is one of the biggest and most crucial assets for business owners in retail or who sell physical products. But it’s also a significant expense and source of cash flow problems. You don’t want your money wrapped up in inventory — it costs money to store your stock.
Cash flow is the lifeblood of any business. Without the right balance, your business finances can suffer. That’s why small business owners must manage their revenue and expenses and review them regularly.
One area that’s often overlooked is the cost of small business insurance. You want the right protections in place, but you shouldn’t pay for more than you need. NEXT Insurance can help you strike the right balance of affordable, tailored coverage.
Get a customized business insurance plan completely online. And if you have questions? Our live U.S.-based insurance experts are standing by.