Business process consultant shares tips for resolving cash flow issues
November 16, 2021at4:00 PM
As a business owner, you’ve no doubt heard about the importance of maintaining positive cash flow. In fact, the ability to manage cash flow could mean the difference between a thriving business and a business that is on the brink of folding.
Cash flow issues can beset all businesses, even the profitable ones. This could be a result of seasonal fluctuations in sales, high overheads, bad debt, outstanding receivables piling up, and so on. In any case, it’s important to resolve cash flow problems in your business quickly or face the possibility of not having a business to run anymore. A recent study showed that over 80% of small businesses fail due to cash flow issues.
So how do you go about it?
KRD Tax & Consulting, a Colorado-based business process consultant, shares five expert tips on navigating business cash flow issues and finding lasting solutions.
Signs of cash flow problems in business
Before we delve into how to resolve cash flow problems, you should first understand how to identify them. If you’re currently experiencing any of the following situations in your business, you might have a cash flow crisis on your hands:
High accounts receivable with numerous invoices still unpaid — This means that money is not flowing into the business quickly enough. Your debtors and customers are not paying on time so money is slow to come in but quick to flow out.
Declining sales — There are several reasons for this, including economic uncertainties, rising competition, and obsolete sales models. Either way, declining sales means that your business is not bringing in enough revenue to cover its overheads and other expenses.
Excessive short-term debt — When money isn't coming in quickly enough, you might resort to short-term debt to keep your business afloat. Over time, these debts can start to pile up and before you know it, your cash flow is in the red.
Rapid business growth — There’s nothing wrong with growing your business quickly. However, it becomes a problem when you have to tap out your cash reserves to facilitate the growth. This will leave you struggling to meet your short-term obligations and ultimately impact cash flow.
Our top 5 tips for resolving cash flow issues for your business
1. Keep track of all incoming payments
Stay on top of your accounts receivables by making sure invoices and payments are settled when due. Some invoicing systems have built-in automated payment reminders to chase up on overdue payments, so you don't have to do it manually. List down all your outstanding invoices now and chase those payments. You can also accelerate your receivables by offering incentives for early payments.
2. Reduce unnecessary expenditure
Cost-cutting is a proven measure for managing cash flow problems in the short term. If your business expenditures outweigh revenue, it’s time to review your day-to-day expenses and see what you can afford to cut out. Even if you can’t cut costs outright, you could negotiate more favorable terms and stretch your payables so there is less strain on your current working capital.
3. Improve profit margins
A higher profit margin means more cash at your disposal. Take a look at your pricing model and see if you can raise prices on certain profitable products or services. If you can’t improve your profit margins, at least do away with unprofitable or minimally profitable products and services. Focus on things that bring in the most cash.
4. Utilize cash flow forecasts
A cash flow forecast tells you how much cash reserves your business will need over the next few weeks or months. This way, you can plan your finances better and take steps to prevent cash flow problems in the first place. When using cash flow forecasts, make sure to update them regularly with actual figures, so you have a realistic and more accurate forecast of your cash flow needs for the coming months.
5. Sell off non-essential assets
If your business is asset-rich but cash-poor, you could sell off some non-essential assets and gain a much-needed cash injection. Essentially, you’re converting one asset into another and keeping your business afloat in the process. If you’d prefer not to sell, consider leasing out the asset so you can use the income to buoy your working capital without giving up ownership.
Book an appointment with KRD Tax & Consulting for tailored business solutions
As your trusted business process consultant, KRD Tax & Consulting can help you work out the best approach for fixing cash flow problems in your business. We also offer tailored business solutions, including strategic business planning, bookkeeping & accounting, and enterprise resource planning.
Schedule your appointment with our professional team today by calling 720-524-4063 or through our contact form.