Cash flow can be mitigated with finance solutions, lines of credit, & non-financing improvement of management systems. Rolf Neuweiler, A2ZCFO (image:chalkboard)

Cash Flow Problems and Solutions for Startups and Small Businesses (1st of 3 parts)

This is the first of three blogs about cash flow problems and solutions for small businesses.

Cash flow management is key for a small business to succeed

About 82 percent of startups and small businesses fail due to poor cash flow management. Businesses experience cash flow problems when they cannot timely pay employee salaries and/or pay for an business opportunity needed. Cash flow is not merely money coming in and out, it is the bloodline for a company’s survival. Monitoring cash flow regularly is like keeping pulse to discern a business’ health.

No matter how vigilantly you protect your company’s cash, hiccups are more of the norm and a reality. Some problems need emergency blood transfusion, an immediate influx of capital like a short-term loan or a business line of credit. while others involve finding ways to cut expenses.

If you don’t have direct financial experience, consider working with a CPA or financial expert to help you determine which problems you have – and how to solve them.

The following are an non-exhaustive list of cash flow problems and solutions.

Preventive strategies

An ounce of prevention is better than a pound of cure. Some of the preparational strategies are:

Get accounting books organized.
Use a cash-flow budget.
Get customers to pay quickly.
Rein in unnecessary spending and stay alert to potential pitfalls.
Stretch out payables.
Manage inventory properly.
etc.

Get accounting books organized

Startups and new business owners are often too busy with setting up a business that they ignore bookkeeping. Even though small businesses usually cannot afford to hire professional bookkeepers, CPAs, controllers, CFOs, it is important that they use at least outsourced accountants and use an accounting system to keep the books in good order, you’ll be able to stay on top of how much each customer owes you. You and/or your accountant will also be to generate useful reports so that you can understand your cash flow much more easily.

Use a cash-flow budget

As part of the revenue forecast, create a practical cash-flow budget, and adhere to it to avoid impulse spending. Keep at least two months of operating expenses as reserve to protect against unexpected stalls to cash flow. Use a cash-flow statement to track your inflow of revenue and outflow of expenses weekly, monthly, quarterly, so you can plan ahead for difficult periods, and avoid late payments and other penalties on past due invoices.

Get your customers to pay quickly

Providing a method or a reason for your clients to pay you faster can improve your immediate cash flow needs. Be creative within the parameter of your business’ situations. Here are a few common practices:

Accept direct deposits from our clients so that way the money goes directly into a company’s bank account.
Subscription monthly billing, automated.
Give customers an incentive to pay early with less payment.
Charge interest for late payments.
Accept credit card payments
Etc.

(To be continued.)

We at a2zCFO help businesses navigate through calm and troubled waters with more than 30 years of experience, as your outsourced CFO and your co-pilot. Contact us for a free initial consultation. “Keep your ship on course.”

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