How to Solve Common Cash Flow Problems

Thursday, June 28, 2018, 6:00 PM | Leave Comment

Many businesses nowadays struggle with finances. One of the main financial concerns for startups and small businesses is cash flow problems.

As a matter of fact, around 80% of small businesses in the U.S. fail due to the lack of proper cash flow management. Cash is one of the most important business assets. It is the most liquid asset that allows you to cover expenses as soon as they come up and also helps you mitigate, as well as minimize the risks of going bankrupt.

Having a positive cash flow can, in many ways, influence business success, whereas having a negative cash flow can easily lead to business failure. That’s why it’s important to manage your cash flow accordingly and ensure that you can cover any expenses that may come your way.

Here are a few ways you can solve common cash flow problems.

How to Solve Common Cash Flow Problems
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  • Have a financial plan

    Managing your cash flow in many ways depends on having a proper financial plan for your business. Even though finances can be a daunting task for any business owner, they are essential for running your business successfully.

    You can start things off by preparing a financial statement for your organization. A financial statement consists of statements, such as balance sheet, income statement, cash flow statement and so on.

    It allows you to determine where your business stands from a financial point of view. Moreover, you’ll be able to determine what’s working and which business operations require improvements. It will give you in-depth insight into where your money is coming from and where is it going.

    Having a financial statement also allows you to manage your funds more efficiently and make more strategic decisions when it comes to future investments. Understanding your financial status is the key to managing both your business and its cash flow.

  • Invoice factoring

    Many businesses offer invoices as payment means for their customers. Invoices may be a convenient payment option for your consumers, but it may not be so convenient for your cash flow. The main reason is that invoices take between 30 to 120 days before they’re due and before you can collect payment. During that time, you have expenses, such as, bills, salaries and taxes to pay for.

    Without cash to cover those expenses, you will easily end up in financial trouble.

    To avoid this common problem, you can consider invoice factoring. Simply put, you sell your invoices to a company for a small fee and get instant cash, while the company collects payment from customers when invoices are due. This is not a long-term solution, but it can greatly help you improve cash flow when you run into financial difficulties and when you need to cover any immediate expenses.

  • Provide additional payment options

    Getting paid on time is essential for any business, no matter their size. Online consumers prefer convenience in payment options when dealing with various businesses. This may not always work in your favor in cash flow terms, but it’s necessary to attract and retain customers.

    In order to ensure you get paid in a timely manner, you can set up multiple payment options for your customers to choose from.

    For instance, invoices, credit cards, debit cards and other payment methods can help you improve cash flow and provide convenience to customers at the same time.

    Relying on single payment option can greatly stymie your cash flow and thus increase the chance of getting into financial problems. You can examine different payment methods here and set up your unique payment system. That way, you can ensure that you get paid on time and that you maintain a positive cash flow at all times.

  • Set up an emergency fund

    Having an emergency fund may be old fashioned and traditional in every sense, but it is in fact, an effective method at ensuring you have cash on hand in case you need immediate access to funds and cash.

    You can put away a small portion of your profits or your personal funding into an emergency fund for rainy days. How much funding you’ll allocate to your emergency savings account depends on your profits and financial forecasts for your business.

    Over time, you’ll have access to quick cash to finance your business and improve your cash flow when need be. What’s more, this method is more reliable than having to look for outside funding in case of an emergency. You won’t have to go to a bank for a loan and worry if your credit score is good enough to get the loan approved.

    Also, you won’t have to spend time and effort to convince investors to help you out either. An emergency fund can be an instant solution for financial struggles your business may face in the future.

Cash flow problems can easily hold back your business and even lead to failure if you’re not careful enough.

What’s more, cash flow problems are quite common, especially when your business is still in its development stage. That’s why it’s important to have a good plan in place and manage your cash flow accordingly, in order to ensure your business can reach success.

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