Did you know 61% of small businesses worldwide experience cash flow problems? Whether your business is battling cash flow issues due to slow-paying customers, too much inventory, or poor financial planning, you may lack money to cater to daily expenses and miss growth opportunities. Learn three ways businesses can deal with cash flow problems for optimal financial management and performance.
Reduce Expenses
Lowering costs is invaluable in tackling cash flow problems. Consider reducing nonessential expenses such as phone and internet, landscaping, and third-party IT. Also, you can go paperless, leverage online advertising, reduce inventory, and outsource some functions.
Do not forget to create a budget and stick to it to streamline finances and identify areas of unnecessary spending. In addition, consolidate insurance policies and avoid unnecessary debt. However, be cautious not to cut expenses that generate revenue, like sales, marketing, and equipment rental.
Create a Cash Reserve
Like an emergency fund in personal finance, businesses require a cash reserve for a rainy day to curb cash flow problems. Also, it is handy to maintain operations when revenues are down and seize opportunities. Strive to have at least two to six months of operating costs in a separate, interest-bearing account.
A cash reserve can be a lifesaver for your startup or small business should it face severe cash flow challenges threatening its survival. Building cash reserves can be challenging but possible with improved debt management, reduced expenses, and appropriate budgeting.
Become an Invoicing Pro
Over half of small businesses struggle with late invoice payments, affecting their operations and profitability. Late payments also contribute to cash flow problems since they tie up monies usable for daily expenses.
A good way to address this problem is to simplify invoice payment and reward clients for timely payment. For instance, you can provide discounts for early payment and penalties for late payment –perhaps 2% interest for every month of late payment.
Cash flow problems are unfortunate but rampant for businesses, especially startups, and SMBs. As such, enterprises should invest in cash flow management and combat cash flow issues with the tips above. Contact Monterey Commercial Capital to learn more about managing your company’s finances and preventing cash flow problems.