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Cash Flow Problems AND Ways to Resolve Them

You've heard the term "cash is king", right? As a business owner, the cash in your bank account is what pays your bills, pays you, and keeps the lights on in your business.


As an accountant, it's my duty to tell you that you can't run your business off the balance in your bank account. You also can't use that balance as a projection of success or failure in the company. BUT - cash is essential to make sure payroll is met, goods can be purchased, and your family can be supported. The balance in your bank account tells one story but it's crucial for you as the business owner to understand where your money is going, when it's time to find funding, why you may be running short on cash, and how to pivot or adjust before you have a major issue on your hands.

Here are 5 indicators that a cash flow issue is coming.

#1 Accounts Receivable continues to rise.

If you’re A/R is growing (and not necessarily because business is expanding) that means you are spending money to provide products or services and are not getting paid in return. Cash is not coming in as fast as it is going out.


How to adjust: Constantly monitor A/R and make sure you have processes in place to collect. A/R requires constant attention. Are you able to change your invoicing process to collect on receipt? Or change your terms to a shorter window? Be sure you are invoicing close to the date of service or sale. If you wait a week to invoice, that is 7 more days it will take you to receive the payment. Invoice promptly and make it easy for customers to pay. Set up ACH payment and credit card payment systems to make it so easy for your customers to pay you.


#2 Large Inventory Requirements.

If you operate a business that requires you to buy large amounts of inventory, you could run low on cash after a big inventory purchase.


How to adjust: Plan ahead and set money aside. Project growth for the business and know when a large purchase order will need to be placed. Ask your vendors for longer terms or payment plans. Ask vendors if you can order in smaller quantities. Price out different sources. Shop options.


#3 Growing too fast.

There is a lot of truth in "growing pains". Quick growth can hurt your cash flow. You must spend money on marketing/advertising, inventory, payroll, bigger office space, etc. and many times before your sales have increased enough to cover the increase in expenses.


How to adjust: Pay close attention to your growth. Plan and make smart decisions. Consult where needed. You must indeed spend money to make money, but you want to make sure that you are spending money in the right places. Measure your ROI. Create sales goals and corresponding expense budgets and continue to measure as you go – adjusting those goals and budgets.

#4 Sales are declining.

There can be many reasons for a decline in sales. Maybe the economy is declining, and you sell or service a luxury item. Maybe your competition has increased or stepped up. Maybe you’ve stopped marketing your business.


Here are a few things to consider:

a. Where are your losses coming from? Is there a particular demographic where you are selling less than you used to?

b. Is there a technical or process-related problem? Is your sales page on your website broken? Are in-person customers dissatisfied with customer service?

c. Are there macro-level changes happening in your industry right now that are affecting common benchmarks overall?

d. When is the last time you updated your messaging to your customers?

e. Does your business model still make sense?

f. Is your business experiencing a seasonal fluctuation?

#5 Your business model just isn’t profitable, yet.

Maybe your model just isn’t working.


How to adjust: See if you can increase your prices or lower your expenses by cutting down on rent, payroll, or other large expense line items. Go back to market research and make sure you're packaging your products or services in a way that is invaluable to your ideal customer. Tweak your offering to meet the ever-changing market.


Once you've found the financial leaks you can make adjustments to ensure they don't lead to bigger problems. As small business owners, we operate small boats. This means you can pivot and make changes at any time with a slight turn of the wheel.


10 high-level tactical steps you can take to prevent future cash flow issues

  1. Set money aside for taxes. Create a separate tax savings account and move money into it once a month.

  2. Have a cushion or a rainy day fund. These savings can also be used for new/broken equipment and unexpected inventory purchases.

  3. Know when to lease vs. buy vehicles, equipment, and property.

  4. Make it a habit to shop around for better prices.

  5. Consider regular price increases in your product or service.

  6. Send invoices on a more immediate basis, not at the end of the week or month.

  7. Incentivize customers to pay sooner. Make it easy, offer discounts.

  8. Increase marketing to boost sales.

  9. Review your cash position and budget constantly.

  10. Leverage technology.

It's crucial to understand that cash flow issues can arise at any time, regardless of how successful your business appears to be. By paying close attention to these five indicators, you can identify and adjust accordingly to prevent major financial issues down the line. Additionally, implementing the ten high-level tactical steps listed will help you proactively manage your finances and stay on top of potential cash flow challenges. Remember, as a small business owner, you have the power to pivot and make changes when necessary with just a slight turn of the wheel. By being proactive and staying informed, you can ensure the long-term success of your business.


Ready to level up your cash flow management by handing over your reins? Download my services guide and let's work together!

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