Top 5 Common Cashflow Problems Small Businesses Face (And How to Overcome Them)

According to the State of Small Business, 82% of businesses fail because of poor cash flow. In billions of dollars lost annually, cash flow problems cause financial losses for small businesses across the country.

Like any other business, you know that your success relies on having a steady and sufficient cash flow. Without it, you will face numerous setbacks and consequences.

You are aware of your cash flow issues, but what can you do to solve them? Keep reading to discover five ways to solve common cashflow problems in your business.

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   Lack of Cash Flow Planning

Lack of planning can lead to several issues. It includes not being able to cover unexpected expenses, not having enough money to meet payroll, or not being able to take advantage of opportunities when they arise.

You need to create a budget and stick to it. This will help you track your expenses and ensure you are not overspending.

You also need to be proactive about your cash flow. This means forecasting your income and expenses to make necessary adjustments.

2. Inefficient Invoicing and Collections

When businesses don’t keep track of their invoices or follow up on collections, they can quickly fall behind and find themselves in a cashflow financing crunch.

Businesses must be proactive in tracking their invoices and collections. This can be done by setting up a system for tracking invoices and collections and regular follow-up with customers.

3. Unanticipated Expenses

Unanticipated expenses can include a sudden sales drop to an emergency repair. One way to reduce unforeseen costs is to create a contingency fund, a pot of money set aside expressly for unexpected expenses.

This can help to cushion the blow of an unexpected expense and keep your business cash flow management positive.

If you find yourself facing an unanticipated expense, there are a few options for financing it. You can use a business credit card, take out a loan, or dip into your savings.

4. Poor Inventory Management

Poor inventory management is one of the most troublesome. Too much inventory can tie up valuable resources and leave a company vulnerable to theft or loss, while too little stock can lead to lost sales.

To solve these problems, small businesses must implement effective inventory management systems, including these spend management strategies.

This should include regular stocktaking, setting minimum and maximum stock levels, and using just-in-time ordering methods to ensure that inventory is only ever replenished as needed.

5. High Customer Concentration

A small business with high customer concentration means that a few customers make up a large portion of the business’s revenue. This can be problematic because if one of those customers decides to stop doing business with the company, the company could face severe financial trouble.

Small businesses should try to diversify their customer base so that no one customer makes up too large a portion of their revenue.

Avoid These Cashflow Problems Through Effective Tracking Systems

Small businesses face many common cashflow problems, but there are ways to overcome them. To ensure a healthy cash flow, businesses should track their expenses, keep a tight rein on inventory, and offer payment terms that are favorable to them.

Following these tips, businesses can keep their cash flow healthy and avoid common problems.

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