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Expert Answers to Biz Questions
Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.
Small Business Cash Flow Problems: How to Overcome Them?
For a new company or a business that aims to remain small, cash flow issues can often be a major stumbling block in the way of either expanding the company or servicing clients. A cash flow problem would basically mean a situation where the money isn’t available for use when your business needs it. This is obviously extremely detrimental to the running of the company, and is an issue that needs to be dealt with swiftly. Here are a few ways that you can overcome cash flow problems if and when you encounter them.
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There are a number of reasons why you may be faced with cash flow problems in your business. Even if you have executed your business plan to the letter, some extenuating circumstances can crop up and put you back at the drawing board. For instance, you may not have considered that your product would be in such demand, or you may have allowed customers too much credit and been too lenient with late payments. This happens a lot, and in the UK in 2016, 30 percent of small businesses reported customers who frequently pay their invoices late. There are many reasons why businesses come across these problems, and it’s perfectly normal. You just need to know how to act if it happens to your business.
If your accounts are all in order, the best small business funding options are usually to seek a loan from a specialist company. Fundbox, for instance, aims to give small businesses access to credit so that they can get cash straight away and cancel out any unwanted side effects that would occur if the cash flow problem wasn’t dealt with swiftly. All they need to do is assess the business information by reviewing your account and bank data. If all your affairs are properly organised, your business should be able to apply for funding.
Some business owners may be worried about getting themselves into more debt, and applying for funding loans may not be the best course of action for them. For those people, there are some non-financing cash flow solutions that they could look into.
One option that people will turn to first is to renegotiate supplier contracts and try to get a better deal, thus reducing the monthly outgoings of the company. According to business adviser Paolo Garcia, if the business’s growth profit margin is too low, this is the time to consider renegotiating the costs of goods sold with vendors.
Another way to sort out cash flow without having to apply for outside funding is to try to negotiate better terms with your trading partners. For instance, you could ask a partner to extend the timeframe for paying due on receipt, which would enable you to keep cash for a longer period. Other things to consider are improving invoice processing and setting up auto billing to make sure clients pay on time.
Cash flow problems can happen in any business, and if they aren’t addressed quickly, it can lead to the company going under. Make sure you know how to act if it happens to you.
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