How to Deal with Cash Flow Problems

Small business owners know the drill—far too well too. You invest too much as you start out. You don’t track expenses either, so you don’t have a finger on the pulse on how much you’re spending against your earnings. What’s left? A cash flow problem.

Starting a business can be tough, especially if you have no prior experience. What makes it even more difficult though is maintaining it. With little to no financial background, it’s easy to fall into the pattern of struggling to pay bills as expenses rise. That’s when you know you hit a cash flow problem.

Cash flow is the moving force for your business. A cash flow problem essentially means that the money entering your business is not equivalent—or even lower—than the money you’re bringing in. According to research done by US Bank and cited on the SCORE/Counselors to America’s Small Business, 82 percent of small businesses fail due to poor cash flow management skills or an understanding of cash flow.

So, cash flow is an issue. What’s next? Start leveraging these 7 tips to solve them asap today!

1. Keep and maintain a monthly budget

Many businesses are seasonal. Think about food trucks businesses, tutors, landscapers, or vacation rental businesses. These businesses would benefit massively from a monthly budget. A budget this eventually creates an annual budget.

If you’re a small business owner that uses smart accounting software, you can access an accurate cash flow statement that illustrates exactly how much cash you need each month to pay recurring bills. As a landscaper, you would save money from the high-revenue summer months to cover overhead during lower-revenue months. An annual cash flow forecast can reveal potential shortfalls and give you time to seek extra cash, if needed.

2. Invoice right away

Payment terms and schedules should be taken seriously. As a small business owner, you might need to get your hands on money sooner to pay bills, such as equipment, inventory, etc. These cases make it incredibly hard to wait for payment deadlines. A solution to solving this issue is to invoice right away to reduce the number of days the sales is outstanding. You could also consider offering clients a discount to your services/products Invoicing

Alternatively, you could use invoice factoring. This financial product enables businesses to sell accounts receivable at a discount to a third-party factoring company. The factoring company advances up to 90% of the invoice upfront and takes responsibility for collecting payments.

3. Extend payment cycles

Work with your suppliers to extend the payment cycle. This method works well if you need extra financing support—such as during leaner cash flow seasons.

The downside to this strategy however is that it can get tricky navigating these conversations and payment terms with suppliers or worse, it may impact your credit.

To combat these, be sure to choose a payment date that you are confident that you can pay. You can also choose to reconstruct your payment agreement altogether. This means instead of paying monthly like the status quo, speak to your suppliers about annual or bi-annual payments instead, which may offer you discounts.

4. Reduce overall expenses

How do you know if you’re overspending if you have no way of analyzing business cash flow? The short answer is that you can’t. It might sound like a no-brainer, but the easiest way to solve a cash flow problem is to address the root cause: the lack of cash.

Start by deep diving into your income vs. expenses to find out areas to cut cost from. It’s important to know what qualifies as non-essential expenses compared to essential overhead expenses that keep your business lights on.

Start by cutting non-essential expenses, then move to an audit of overhead expenses.

Steps include:

1. Non-essential expenses or variable costs. Also known as ‘discretionary spending’, non-essential expenses are not required for running your business. Basically in any given month, you could avoid paying a certain cost and there wouldn’t be any business or legal ramifications. Identifying discretionary spending is critical to getting out of a cash flow problem because cost-cutting usually comes from these funds. After all, you can’t cut essential expenses. Having a clear view of all discretionary spending, if any, in real-time is key.
2. Essential expenses or fixed costs. Overhead costs are extremely easy to overlook—especially if you’re not closely monitoring it. These are business expenses that are not essential to your business survival. It’s where every business owner should cut costs from first. Expenses such as housekeeping, landscaping, and x are all expenses that should be cut first, before diving into essential expenses.

A good way monitoring these spending—whether essential or non-essential—is by through real-time reporting. Cloud-based accounting software enables small business owners like yourself to run reports on-the-fly, such as a profit & loss statement or cash flow statement.

TrulySmall has incredibly easy and versatile reporting capabilities. You can pull run a Profit & Loss report by time period to compare income, cost of goods sold, and most importantly, expenses at any given time period. Save the report to view later, or export it in CSV or PDF to share.

5. Upsell/cross-sell

Increasing sales is an easy way to boost your cash flow. It’s even easier when you’re selling to customers who are already fans of your products or services.

You can approach it in two ways:

1. Through upselling. Selling upgraded and more expensive products or services to the same customer.
2. Through cross-selling. Looking for ways to sell different products and services to the same customer. For example, selling resume editing in addition to resume templates to an existing client.

Both techniques hinge upon making the sales pitch natural, or not making clients feel pressured. After all, your goal here is to keep existing customers happy and continuing to buy your products or services.

6. Accept digital payments & credit cards

A quick fix to a cash flow problem can be rectified with something as simple as online payments. Just like credit cards and online shopping, make payment an enjoyable and convenient experience for customers. As small business owner, there are several ways you can do this.

• If you run a storefront business, consider moving ordering the products online. This allows you to save money on your brick-and-mortar shop, accept ordering and payments online, and even ship the final product nationwide.
• If you’re a freelancer providing services online, consider moving away from any physical form of payments, like cheques. Instead, manage cash flow using smart accounting software instead. Software on the market today should provide digital payments, such as a credit card payment option. TrulySmall for example, offers a Pay Now button on each invoice sent out. With 70% of global customers who prefer digital payments, why wouldn’t you choose smart invoicing that gives the customers what they want?

7. Streamline invoicing

A huge part of improving cash flow is by being on top of invoicing. This means sending out invoices on the same day each month, and holding your customers accountable on the payment terms. If the invoice states net-15, then payment must arrive 15 days after the date you send the invoice. If you find that your invoicing isn’t as streamlined as you want it to be, consider investing in smart accounting software. For a small price, accounting software should make your life easier—not harder. It should help you reduce manual administrative tasks, invoice easily and quickly, and eliminate bookkeeping and reconciliation errors through AI automation.

Try TrulySmall today—for free!

Whether you only want to improve invoicing or you’re looking for a software that can do both (invoicing and accounting), there are options for you to improve cash flow.

• Invoice for free with TrulySmall Invoices for a simpler option. You can use it on your computer or download TrulySmall’s invoicing app—free and available on iOS and Android.
• If you want to streamline invoicing and get a birds-eye-view of your expenses with reporting capabilities, try TrulySmall Accounting for free for 14-days. The app is available on the web and on iOS and Android.

No matter your business size, there is an option for you. So, let’s start tackling this problem by addressing cash flow today!