Top 3 Small Business Cash Flow Problems And How To Solve Them

56% of small businesses are experiencing cash flow pressure.

Businesses with over $10,000 in monthly expenses only have two weeks of cash available.

82% of small businesses that fail cite cash flow management as a contributing factor.

These stats speak volumes.

They show the importance of cash flow management for small companies looking to build a healthy business. Keeping an eye on your cash flow position and adjusting your strategy accordingly is critical if you want to succeed.

And to help you, we’ve shared below three common cash flow problems small businesses face and simple steps you can take to fix them.

Tips To Solving Small Business Cash Flow Problems

Late Payments

According to a recent study, small businesses have to wait on average 23.3 days to be paid. What’s more, 54% of Australian B2B companies have past-due invoices. So, if some of your customers are slow to pay, or refuse to pay at all, know that you’re not alone in this situation.

The issue is that when a customer takes over 20 days to pay you for a service rendered, your finances are in the red due to the upfront costs you had to spend carrying out the job.

Tips To Solve This Cash Flow Problem:

• Ask for full payment or a deposit upfront.
• Clearly highlight your terms and conditions on each invoice.
• Use cloud-based software and electronic payment solutions.
• Offer multiple forms of payment.
• Offer discounts for customers who pay early.

Growing Too Fast

As surprising as it might sound, growing too fast can wreak havoc on your business.

Why?

Because unless you have an endless supply of cash, you won’t be able to fund your growth.

Growing fast means acquiring more and more customers who need your products or services and having to spend money faster than you earn it to satisfy the demand. As you increase inventory, hire employees to deliver your services, or upgrade some of your tools, your spending might outpace your revenue, making a significant dent in your cash flow. Especially if some of your customers are slow payers!

Tips To Solve This Cash Flow Problem:

• Only recruit when necessary.
• Hire one person at a time and make sure you can afford to. If you can’t, look into outsourcing some tasks to freelancers to reduce your overheads.
• Apply for a business line of credit. This will allow you to finance your cash flow gaps as your business grows.

Spending Too Much

Yes, you need to invest money into your business if you want your business to succeed. However, you also need to manage your finances by monitoring your cash flow and budgeting for major purchases. 

‍60% of small businesses fail within three years of inception due to financial mismanagement highlighting the importance of running a tight ship when it comes to your budget. Spending too much money on things you don’t need or paying high rates for certain items can bleed your business dry.

Tips To Solve This Cash Flow Problem:

• Use budget software such as Float Cash Flow or Payference to track your expenses and provide insights based on your spending pattern.
• Invest in automation tools to save money on hiring someone to perform specific tasks.
• Review your contracts with vendors and suppliers and negotiate better rates.
• Compare insurance providers using our free instant quote generator, where you can get an estimate on market-leading insurance in seconds. Simply enter your occupation and expected revenue to get started.

We hope this article will help you cut down on overheads and put your finances in order. At upcover, we’re passionate about helping small business owners succeed, and a big part of your success depends on being protected adequately. While business insurance is often overlooked, the right cover can protect your financial assets and ensure your business thrives for years to come.