How to solve cash flow problems

In business, cash is king. Every business needs cash to operate comfortably. One of the biggest causes of small business failure is cash flow problems.

Cash flow refers to the money that is moving in and out of your business every month. In simple words, it is the money coming in from customers and clients, and going out in form of payments for expenses.

Regardless of the size of your business or the industry, if your expenses exceed your available cash, then you have cash flow problems. When your cash flow rivers run dry, your business will struggle paying bills, meeting payroll and acquiring inventory.

Think of cash flow as a picture of your business’ checking account over time. If it shows more money coming in than going out, you are said to have ‘positive cash flow’. But if the opposite is true, your business might be in danger of failing from cash flow issues.

Whatever the cause of your cash flow issues, here are some strategies to help your business stay afloat.

1. Utilise a business budget

Just like with your personal finances, your business should have a budget. A business budget is like a roadmap for your business. It helps you track the cash you have on hand, business expenses, and how much revenue you need to keep your business running or profitable. When you have these numbers down on paper, you have a better chance of succeeding in business by anticipating its future needs, spending, profits and cash flow. You will spot problems before they get out of hand and fix them.

Some financiers might also require a copy of your business budget when you ask for a loan. Sharing your business budget with employees can also help them understand where your business is headed and stay motivated.

Tabulate a business budget at least yearly. However, make sure to divide it into monthly budgets so you can track your progress through the year.

2. Get a line of credit

Set up a flexible line of credit with a financier. This ensures that your business will have access to quick loans when you need them to ride out a cash flow low. Quick access to funds can mean short-term business loans, company credit cards, overdraft facilities or invoice finance.

But you have to ensure you can easily afford the interest charges so as not to put more strain on your business. If you don’t need access to large amounts of money, you might find that access to overdraft facilities or invoice finance are more affordable than short-term business loans.

3. Raise investor capital

A third way to solve your cash flow problems is by increasing your business’ working capital. You can do this by bringing in a business partner or selling equity. But don’t be desperate and go for just anyone who’s willing to give you the money.

Make sure that you get the right investors for your business – realise the fact that you’re actually choosing a business partner, not choosing money.

4.  Accelerate receivables

It is important to make sure that you are paid for your products or services as quickly as possible. The quicker money flows into your business, the faster you will fix your cash flow problems. You can do this by asking your customers for a deposit or partial payment upfront.

Other ways to accelerate your receivables is by sending invoices on delivery, invoicing clients more regularly for long-term projects, and coming up with easier and more convenient ways for your customers to pay you. For example, you can enable online or mobile payments, and give your clients a small discount for early payments.

Additionally, scour your records for any past-due client accounts and ask them to make payments. Even partial payments will help when you have a cash flow crisis.

5.  Sell non-essential assets

When you have a cash flow crisis, you might have to sell some of your business assets for quick cash. Only off-load assets that aren’t necessary for the operation of your business.

For example, you can sell computers and furniture that aren’t in active use. This will give you a temporary fix to your cash flow problems as you look for a more long-term solution.