From overtrading to seasonal changes in demand, there are many possible reasons why you might be dealing with a cash flow problem. Learn more!
As a business owner, you rely on consistent cash flow to keep your business up and running as it should. However, it’s not uncommon for small businesses to run across a cash flow problem or two. When this happens, it’s essential that you address the problem and correct it as soon as possible.
Struggling with a cash flow problem is the last thing you want to deal with as a business owner. But before you can begin to address the issue at hand, you must first have an understanding of a few common cash flow problems. If you know what problems to be on the lookout for, you can prevent them from happening and correct them as soon as they do happen.
Don’t let your business down. Continue reading below for 7 reasons why you might be suffering from a cash flow problem.
1. You’re Invoicing Only Once a Month
If you’re only completing invoices once a month, this could cause you to have a decrease in cash flow. Invoicing only at the end of each month means you only have money coming in once a month. Instead, consider completing invoices twice a month.
Invoicing twice a month also helps businesses that still work with checks and are waiting for checks to clear each month. Another great way to keep the cash flow coming in more than only once a month is to have clients pay in two separate payments. For example, if you’re completing a big project for a client, have them make a payment halfway through the project and another one when it’s finished.
2. You’re Not Using Automatic Payments
If you’re still doing payments manually, it might be time to switch to automatic payments instead. Switching to automatic payments allows you to know what’s coming each month and when. This helps you get a better handle on your business finances.
This will also aid in decreasing the number of late payments made from clients. Sure, there will still be a few late payments here and there as automatic payments cannot stop all late payments, but you should see a significant decrease in late payments.
Having fewer late payments means your cash flow remains steady. When you’re in the middle of selling and receiving a payment, you won’t have access to funds for another purchase. When this happens, you can consider relying on bridging finance solutions.
Bridging finance loans help businesses get by during the time between waiting for payment and making another purchase.
3. There Are Low Profits or Losses
If your business is suffering from major cash flow problems, then you’ll need to look at your profits. If your profits are low and if you’re taking more losses than wins, your cash flow is going to suffer the consequences. Profit made from trading is one of the biggest profits that a business can make.
If you’re taking several losses, then you’ll need to start addressing the reason for your losses. If you can change low profits and losses to high profits and wins, then you’ll see an increase in cash flow.
4. You’re Not Asking for Money Upfront
Another mistake that you might be making is not asking for the money upfront. This isn’t something that every business should or needs to incorporate into their system. However, if your business has cash flow problems, it’s something to consider.
Not all clients will be willing to make payments upfront, but you might be surprised at how many of them are willing. If you have reoccurring clients, then your level of trust between your business and the client should help them feel more comfortable making payments upfront.
5. Your Business Is Overtrading
If your business is overtrading, then you might find yourself tight for money. Overtrading happens when a business expands more quickly than expected. When this happens, there’s pressure placed on short-term finance for your business.
One example might be if you own a retail chain and decide to expand quickly by opening new locations. When you do this, you’ll have to have the money upfront for rent, pay for stocks, and more. If your business relies heavily on long-term contracts, then this is another risk for overtrading.
6. You’re Dealing With Unexpected Changes
Unexpected changes are anything that happens that’s not included in the plan for the cash flow. There are both internal changes and external changes that can happen unexpectedly. Some internal changes that aren’t foreseen can range from broken machinery or equipment to the loss of staff members.
Some unexpected external changes might be accidents, a change in legislation, or even an economic downturn. To prevent a major loss in cash flow due to these changes, be sure to always keep an eye on these possibilities and have a plan in again in case any of these problems were to occur.
7. You’ve Lost Your Motivation
One of the last reasons why you might be suffering from a cash flow problem is that you’ve lost your motivation to pitch and sell. Remember how hard you worked to open your business? Now, you must keep this motivation up throughout your entire business’s life.
Never get comfortable. It’s not uncommon for a business to take on a project and become comfortable relaxing. Then, when the project is finished, there’s no new work to be done.
Always pitch and sell your services or products on a consistent basis to prevent this from happening.
Does Your Business Suffer From a Cash Flow Problem?
If your business is suffering from a cash flow problem, then you’ll want to keep this guide handy. Knowing these common reasons for a decrease in cash flow will help you stay on top of your cash flow at all times!
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