When you don’t know how to swim, and still get into water, what happens? Of course, you drown. Isn’t it? So when you are aware of something (that you aren’t efficient) and still perform that task, it leads to disaster. How about learning first and then perform the task? What the heck I am talking about? You would be thinking this. Aren’t you? Let’s understand this with business scenario. What is most important in any business? Cash or investment any businessman makes, right. Suppose, you’re a businessman and cash flow is an important aspect for you to build a healthy business.
But what if you are not making enough money in your business? You aren’t able to generate profit & revenue within the business? These situations occur when businesses face problem within their cash flow. Are you aware of cash flow problem? If no, this article is a guide a complete guide on cash flow problem just continues read the article till the end.
Here you will learn about what cash flow problem is, different types of cash flow problems, and their solution. Without any further ado, let’s get started from scratch.
What cash flow problem is?
Before shedding light upon cash flow problem, let’s understand about cash flow alone. In laymen’s terms, cash flow is the process of the money coming in and going out of your business. It financial terms, it is all about accounts receivables and payables.
Now get back to the main concept that is cash flow problem. Simply putting, cash flow problem occurs when the flow of money goes out more than coming in. It means your expenses exceed your profit and revenue.
Here are some main points which cause cash flow problem-
- – Over investment
- – Seasonal demand
- – Unexpected changes occurring in the business
- – Low profit
- – Offering customers too much credit
- – Too much stock to store and sell
And so on.
Let’s dig in below and talk about major cash flow problems and their solutions.
Different types of cash flow problems and their solutions
# A lot of unnecessary investment
Of course business is all about making investment, right. But it doesn’t mean you blindly invest in anything or purchase any unnecessary equipment or asset not related to your business. Certainly, spending a lot of money also creates conundrum for you as well as for your business. Knowingly or unknowingly, you would also be spending money in your money. How to know where you’re investing in right way and how you can reduce them?
Follow the solution given below:
- – Adopt technology and go digital which save you money from investing in paper work. As per the study, businesses spend $80 per employee on paper per year. Just go paperless.
- – Keep an eye on your expenses and analyse them. Identify ways to reduce them.
- – Always make out a financial business plan in advance to cut out expenses.
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# Delay in payment
Another reason which causes cash flow problem is delay in payment. Many small businesses face cash flow problem due to delay they have to bear in payments. In reality, the majority of clients will pay late. In fact, waiting over two months for payment can literally put your business in chaos. This happens when you entirely rely on cash for business growth. How do you solve this problem? Just read below.
Below points will help you solve this problem:
- – Make sure you offer different cash flow options to your clients.
- – Offer incentives or freebie for advance cash payments.
- – Make use of financial tracking tool such as Wave to reduce the risk of human error.
# Disorganization in business
Next reason that leads to cash flow problem is disorganization that happens in the business. According to the study, there are three in four SMBs with struggling or failing businesses believe disorganization has led to a loss in productivity. And almost 40% aren’t good with numbers. Certainly, this is the real challenge when it comes to maintaining healthy cash flow.
Let’s solve this problem by following given solutions:
- – Design a statement of cash flow to forecast declines.
- – Use a receipt scanning app to get a picture of receipts and transactions.
- – Estimate your next year’s taxes and start organizing your filing now.
# Expecting profitability too fast
One thing which every business wants to get quickly is profit. This actually creates a problem for businesses that estimate to get high profit in less time. According to the survey, 84% of small businesses owners reach profitability within the first four years of their business. However, not every business will achieve this in one go. If you haven’t prepared for this it will create cash flow problem for you.
Follow the given tips to solve this problem:
- – Set a realistic time frame to profitability and have good amount of cash
- – Don’t aspect too much about attaining profit too soon.
You can also take help from some cash flow forecasting software to get rid of cash flow problems.
Let’s sum it all up
In the concluding part – cash flow is every crucial for any business to maintain to keep the performance of the business healthy. If you’re facing any above problem in cash flow, then follow the solution which I have discussed simultaneously. Giving the cold shoulder to cash flow problem could lower down the performance of your business hence wind up your business eventually. Keep the above cash flow in mind and avoid them at all costs.
Just get in touch with us if you have any query related to cash flow.