9 General Cash Flow Business Challenges And How To Solve Them

Being a businessman, it is natural to have fear of running out of money, and having Cash flow business challenges. The lack of a “predictable paycheck” is frightening, but the incentives of owning your own business are far more important than those risks.

It is not realistic to say that we should put this insecurity aside completely. A deficiency in finance comes on the second number in the list of second-biggest reasons businesses fail. But make sure that you do not become part of that list.

The great way to ensure you do not run out of finance is to pay attention to your Cashflow business challenges and handle challenges head on to stay in business to flourish. In this article, you will come across how you can become too proactive in sustaining healthy cash flow for your little business.

What Is Cash Flow?

Cash Flow

Cash flow is associated with the blanket term that refers to the finances coming into your business and going out. From a financial perspective, it is the culmination of accounts payable and accounts receivable.

Consider it in another way; cash flow is associated with the movement or flow of money either in and out. It’s different from sales or revenue, it’s completely regarding the cold hard cash that is unavailable or available to your business.

Indeed, cash flow is enormously significant for small businesses. No matter, whether you consider yourself a money person; you will need to do some fundamentals of business accounting in your company. Being an entrepreneur, you need to be proactive regarding the Cash flow business challenges in your business. If you do not do it, you could indulge yourself in circumstances where you are out of money to continue the operations of your business.

To begin, it is great to consider some of the noticeable common Cash flow business challenges for SMBs and how you can mitigate them.

9 Common Cash Flow Business Challenges

9 Common Cash Flow Business Challenges

1.   Delayed or partial payments

Delayed Or Partial Payments

When it comes to the area of cash flow, outstanding payments are one of the major Cash flow business challenges SMBs come across.  That 60% of invoices are paid after the due date, according to the study. This is a genuine cash flow challenge because you have not received the money for the work you have done already. In this scenario, you are even out of the cost incurred in the job, not even the profit so it is important to cater to this problem.

Over 30% of SMBs are impacted negatively and allocate an average of fifteen days every year to chase that payment separately.

Small business normally waits for almost 72 days before their invoices get paid, According to this study. That’s not good!

And if you provide the facility of partial payments, then you also tie up your money. Enabling your customers to pay in installments, especially for big purchases is the smart strategy to boost sales but it hurts your cash flow.

How To Solve It:

  • Do not delay your payment, try to pay upfront, at least the deposit amount can help
  • Provide discounts for early payments and full payments, and prescribe the charges for late fees
  • Offer different payment options
  • Execute automated payment reminders on the invoices
  • Make sure to send your invoices as soon as possible
  • Go for the credit check of your customer before moving ahead
  • To allow your customers and their banks to send mail physical checks, sign up for the lockbox

2.   Not sufficient cash buffer on hand

A cash buffer refers to the financial security of your business. To find out how much cash buffer your business asks for, you will divide the cash balances by cash outflows. This will allow you to know the number of days that would take with your cash on hand to make for no incoming cash flow.

27 days of cash buffer on hand takes the average SMB, as per one JPMorgan Chase study. The ratio can vary based on the nature of your business, but the best way is to calculate it by yourself.

How To Solve It

  • Make sure to renegotiate payment dates from your customers and to your vendors.
  • Follow the proper calculation provided above to know the proper cash buffer for your company
  • Use the calculation provided above to understand the appropriate cash buffer for your business.

3.   Not on time payment posting

Do not think that if you have received payment then you can have access to that money. In electronic transactions, the payment process can often cause a delay between the time the payment was made and the time you get access to cash in your accounts.

Well, you cannot avoid the payment posting time, that is the way the bank works. But some simple ways can help to ensure the stability of cash flow.

How To Solve It:

  • Provide the alternatives to cash payments
  • Reward cash payment with a freebie or discount
  • Link your invoicing software with the bank account so customers can pay through direct deposit that helps to post more instantly
  • Enable a line of credit to preserve your cash on hand and make purchases.

4.   Incompetence/disorganization of cash flow

It has been founded in a study conducted by Staples, that three out of four SMBs struggling or failing companies believe that disorganization or incompetence is the reason that has led to a loss in productivity. And around 40% of businesses are not good with numbers.

These are considered serious challenges when it comes to sustaining healthy cash flow. Your business goes broke without even awarding it. If you are not budgeting, tracking, planning, or estimating, you can indulge yourself in the dark regarding the appropriate state of your business finance. One of the main Cash flow business challenges

How To Solve It:

  • Make a proper statement of cash flow to forecast surges and declines
  • Execute a financial tracking software tool such as Wave so that the automation of some of the processes and decrease the human error can be done
  • Get a proper receipt scanning app to take the picture of all the receipts and upload them to your account and save them.

5.   Speedy growth

It is amazing to see the quick growth of your business, congratulations! Well, that growth impacts your bottom line positively. But you must have faced plenty of growing pains along the way and cash flow is one of the Cashflow business challenges among them.

You need to invest more to make more money in your running business. Your overhead could increase due to more outsourcing, you need to recruit more people, you need to make investments for inventory upfront and you need to upgrade tools to achieve higher plans.

How To Solve It:

  • Execute a tech stack that has the potential to grow your business. Begin by recognizing your future business goals and finding your requirements from there.
  • Produce some ways of passive income to compensate for the lesser income stream or even to finance your business for more growth.
  • Go for recruiting only when you genuinely need to and go for one at a time.

6.   Sales challenges

No matter if you overpredict your sales volume or sales have mysteriously come to an entire halt, at any moment in your business when the incoming finance slows down, your cash flow endures. The decline in sales is caused by many factors, either external or internal like market fluctuation or even the climate for the physical outlet-based business that depends on foot traffic.

Some other times, the internal factors include that your marketing is not resonating. Perhaps, it’s your main development process that is the Cashflow business challenge. In many cases, it is the mixture of both unavoidable external ones and controllable internal challenges that can play an important role in your sales objectives.

How To Solve It:

There are plenty of ways to cater to this issue; it frustrates you as to why you’re not looking for any sales. Online businesses may look at their conversion software or Google analytics, whereas a freelance writer may consider executing a referral program with rewards.

7.   Wide-ranging payment terms

Make sure to match up your incoming and outgoing cash flow, because otherwise, it can lead to shortages and prime surpluses, and Cash flow business challenges.

Such as, if you are running a digital marketing business and your outsourcing client for various contracts sends you an invoice at the beginning of each tenth after the completion of work. The billing terms of contractors are all different, some invoices do not upfront while the others do after the fact that the timing and frequency vary too. You can observe that your accounts are getting low for the few days before I invoice your customer every month.

How To Solve It:

  • In the mentioned case, you could make a separate bank account that only manages money for that customer. It would help you to see the work is netting me to see with time.
  • Make sure that everything is synchronized after negotiating the payment terms
  • Go for the automation of bank transfers, invoicing and payroll to better allocate with the varied schedules

8.   Too many expenses

Whereas you need to make more investments to make more money sometimes, there are also the Cash flow business challenges of spending too much money. If you’re deterring your overhead from being in your hand anymore, it’s time to dig into where your giant expenditures are and how you can decrease them or even remove them.

How To Solve It:

  • Automating the repetitive task can help with the work you previously hired people to do.
  • Make the financial milestone and business plan prior you make the different investment to meet in future
  • Keep an eye on the existing expenses and categorize them in terms of ranking. And then make efforts to tackle those which are high on the list.
  • Transform all your operations to paperless; according to the study from MultiBriefs, companies spend almost $80 per worker on paper each year.

9.   Inventory in excess number

If you are running a business to sell physical products, inventory is one of the huge and most significant assets. It is the way to produce more money but the cost associated with generating each item is greater than if you paid your supplier for it. The additional costs are known as holding cost that is associated with keeping stock on hand.

It is important to run retail operations to have safe stock and avoid expensive stockout, but if you have too much on hand. This can have hazardous effects.

How To Solve It:

  • Enhance your forecasting with incorporated inventory management software and POS systems.
  • Order the products only what you truly needed, find the formula for finding out your ideal safety stock level:

= (highest daily usage X Maximum lead time in days) – (standard daily usage X usual lead time in days)

  • Put into a practice purchase order and auto-reorder processing.
  • Ensure you account for advertising campaigns and marketing and order merchandise according to that…
  • Moving ahead with shortening your cash flow problems

In The Nutshell

Being an entrepreneur, one of the objectives of business is to generate more money. But you can still produce money and go broke. It just requires some appropriate planning and proactive thinking to ensure you sustain healthy cash flow, limit any Cash flow business challenges, and ultimately be involved in the business.

Read more: Best ways to create an effective sales process



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