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What Is A Cash Flow Problem And How Can You Resolve It?

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cash flow problem

When you run a business, you are in charge of all the business’ finances, from staff costs to supplier costs to rent and bills for your place of work and while the incomings of a successful business are always nice to have, there are also lots of outgoings that a business is responsible for as well.

Sometimes, it can be difficult to find a good balance between money coming into your business and money going out and if you think you’ve fallen into a bit of a cash flow problem, it’s a good idea to get a good handle on it as soon as possible.

What is a cash flow problem?

In the simplest terms, a cash flow problem with regards to a business occurs when the business has more debts and owes more money than it is making. There are several reasons why a business might run into cash flow problems, such as invoices not being paid on time, issues selling stock or services or poor management and general running of the business, just to name a few.

Trying to identify where the cash flow problems of a business are coming from is the first step of fixing the issues so that your business can successfully get back up and running again in an efficient way.

Top tips for dealing with a cash flow problem as a business

While cash flow problems are usually a sign that a business is insolvent, there are several things you can do to try and solve your business cash flow issues before you have to look at more serious options such as liquidating your company.

Create a business budget

If your business operates on a cyclical or seasonal business, for example, if it does better in the summer months rather than the winter months, it’s a good idea to try and create a budget based on that.

By making everyone aware that the business is more likely to struggle in the colder months, you can put a plan in place to ensure that it makes more money during the summer months, so that you can “save” up some of that money to tide you over during periods of financial difficulty.

Think about where you can cut costs to save money

Cutting costs as a business can be a sure-fire way to help you save a bit of money so that you don’t have as many outgoings, but it’s imperative that you’re not cutting corners and risking the safety of your staff or customers by doing so.

For example, one of your big business expenses might be paying for business insurance and it might be a cost that you might want to reduce significantly or just cut out altogether, but getting rid of your business insurance policy could mean that you’re risking not only the business itself if you ever needed to make a claim, but the health and safety of your customers and employees, too.

However, there are several smarter and safer ways to reduce costs as a business such as minimising the waste that the business produces. For example, if you are a restaurant owner and you throw away a lot of your food, consider rebranding your menu so that there is little room for waste by only offering a certain amount of choice, rather than having a huge menu to choose from. This way, you also reduce costs from buying things from your suppliers as you don’t have to buy as many ingredients.

Apply for a business loan or another line of credit

Applying for a business loan is an option that many companies seek out during times of financial difficulty and issues with cash flow and while you might not like the idea of effectively putting your business in debt and having yet another thing that you have to pay back, accessing a line of credit can seriously help your business when you need a bit of extra cash.

Switch up your invoicing terms

If your business operates on a 30-day or 60-day payment term in which customers have 30 or 60 days to pay, you might want to consider switching up your invoicing terms somewhat in order to get people to pay sooner so that you can pay your bills and suppliers on time.

Many of your loyal customers might be a little disgruntled with the change of your payment terms, especially if they have always paid within the 30 or 60-day payment term that you’ve agreed upon, but if you reduce your terms to two weeks, for example, you could sweeten the deal with them by offering a discount on their purchase if they pay within the two weeks.

Raise your prices slightly

Raising the prices of your goods or services is something that makes many businesses nervous as there’s always the worry that people will be annoyed that they have to pay more for something than they previously were, but if you’ve run into cash flow problems, raising your prices slightly might be a good option.

You don’t have to instantly double the price of your products, but bumping them up a little bit here and there can help to relieve you of some of your cash flow issues, without disgruntling your customers too much.

Always keep an eye on your business inventory

If your business is product-based, then it’s imperative that you keep a close eye on your inventory at all times to see if you’re overstocked or understocked at any time.

If you constantly have a surplus of something when you get a delivery in of your stock, consider reevaluating how much you actually need when you place an order and perhaps order less of it if it’s not selling out every time you order it in.

We can talk you through all of your options and find you the right solution

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