Methods Solving Cash-flow Problems 🏦
Are your methods solving cash-flow problems enough to cause growth in your company?
Growth is great! Whether it is expanding into your third region or getting into a new market, it’s an exhilarating process (especially for the entrepreneur). But it can also result in a crisis. If you can’t fulfil orders, processes are being disregarded to just get it done; inventory isn’t leaving the warehouse. Growth can result in a disaster. When a company is growing at any speed, there are often growing pains that come with it.
Most small businesses encounter a cash-flow problem at one time or another. Fortunately, most cash flow problems can be prevented with a bit of preparation and some methods solving cash-flow problems.
Inadequate cash reserve fund
Most small businesses have an inadequate cash reserve fund. This situation leaves businesses unprepared to handle unexpected circumstances and emergencies.
Today’s businesses are consistently trying some ways on how to reduce costs in the workplace, but many find it hard to do so in a sustainable fashion. 9 out of 10 cost reduction programmes fail to achieve their targets, and the gains made appear to be short-lived.
Creating a cost-aware culture is the goal of almost all of the companies as they strive to respond to downward pressure on prices, intensifying competition, pressure from shareholders and the need to find the cash to fund growth.
Methods Solving Cash-flow Problems need a cash-flow forecast
A cash-flow forecast is essential for new businesses. When a company grows, the first visible thing that happens is cash gets tight. It’s very common for your marketing and pricing team to see grow as only a good thing; nothing bad could be caused by growth.
But when more sales come in, more employees are needed; more offices are required; more inventory is purchased; money can go very quickly. There is one thing that is true: cash is king.
With a cash-flow forecast for new business, you’ll be able to see which months you can expect to see a cash deficit, and which months you can expect a surplus. You’ll also be able to get a pretty good idea of how much cash your business is going to require over the next year or so to survive.
Growth can create a cash flow problem by increasing your company’s costs before increasing its revenue. Double or triple this rate of growth and your company can quickly find itself spending more money than it has to fulfil upcoming orders. Growth is best when it’s steady.
In methods solving cash-flow problems: growth affects cash-flow by absorbing cash
Growth has a way of absorbing cash. When a company wants to increase sales, you need money to make more money. As the pricing leader of your company, shift your focus on improving profitability and providing fuel for your pricing team to grow the company. While your CEO needs to grow the company, he or she needs someone to lean on. You are that someone. Provide a path for your CEO to grow the company. Guide them in your new cash flow improvement strategies.
Here are the methods solving cashflow problems to stem excessive cash flow:
Adjust Your Pricing Plan to Improve Profit Margins
Encountering a cash flow shortage should let you inspect your business plan, processes, operations and expenses. You need to find out why you have a cash flow shortage, whether it will be a recurring problem and you will also need to put a plan in place to handle future shortages.
Use job costing to look at your business’s profit, loss statements and profit margins based on the different sectors within your company (jobs, clients, employees, events, marketing strategies, pricing products to sell and services) to find which areas of your business are the most and least profitable. This will help you formulate your business plan to focus on services that generate the most profit, let go of clients costing you money, optimise your pricing structure and also identify where to areas that are affecting your operations.
Accelerate Your Receivables
The quicker money begins flowing into your business, the sooner your cash flow problems will be solved. Offer and accept pre-orders for a product before it hit production, but you can use other strategies to accelerate receivables:
- Ask new customers for a deposit or partial payment up-front, rather than billing the entire amount after services have been rendered or products have been delivered.
- Start sending your invoices early. The sooner you send an invoice, the sooner you will receive payment.
- Send invoices more frequently. Instead of waiting for the full completion of a job to send an invoice, generate invoices regularly to cover the services delivered up to that point.
- Focus on your past due accounts. Scour your accounts receivable for past due to clients and start making phone calls. You can accept alternative payments like credit cards or checks.
Negotiate Your Payables
If possible, delay cash flowing out of your company during a cash flow crisis, it will remove the pressure on your working capital. Be honest with your vendors to negotiate payments or to inquire about delaying payments. Although some might be uncompromising, chances are vendors will be flexible and willing to work with you during a tight situation. You will also likely be able to get some leeway or perhaps even a reduced obligation from your utility providers.
Consider Borrowing Options
Cash flow shortages occur when more money flows out of your company than it is coming in. One way to solve the problem is to find a way to bring more money into the business. Try taking a loan or borrow from financial institutions.
But before you take on debt, be sure you grasp the interest rates and have exhausted all other options. If your business has an intrinsic problem causing your cash flow crisis, then taking on debt will only be temporary and make the problem worse in the future.
Raise Investor Capital
Another way to quickly increase your business’s working capital (and also to bring in a new business partner) is to sell equity. Like debt, however, be sure you really need to sell a piece of ownership in your business to solve a cash flow crisis. Be careful regarding the type of investors you want to have as partners. Do not let the pressure of cash-flow lead you to make poor decisions for the future of your business.
As a rule of thumb in business, you should always scrutinise money that leaves your bank account. But you will need to be especially frugal when spending during a cash flow crisis. During a cash flow shortage, prioritise your expenses. Eliminate all unnecessary expenses and only spend on the costs that keep you operational and generate revenue.
Sell Non-Essential Assets
In addition to cutting non-essential expenses, in a cash flow crisis, you can also sell-off non-essential business assets. Although this is a temporary fix, as you can only sell an unnecessary item once, it is an effective and quick way to methods solving cash-flow problems.
Start-ups, development of new products, etc. often require a good amount of working capital to support the rapid growth for those products or services to have a steady foothold in the marketplace. Consequently, they require a significant amount of cash and leadership for it to be catapulted into success. Start the cash flow improvement strategies early.
Start-ups, development of new products, etc. often require a good amount of working capital to support the rapid growth for those products or services to have a steady foothold in the marketplace.
Facing a cash flow shortage will let you closely inspect your business plan, processes, operations and expenses. You need to determine why you encountered a cash flow shortage, whether it will be a recurring problem or not; and you will also need to put a plan in place to handle future shortages.
An ounce of prevention is worth a pound of treatment. This also applies to financial strategy. Taking steps to actively prevent cash flow shortages will prevent leakage. Paying close attention to these issues – and developing solutions to keep cash flowing into the business – will ensure your enterprise makes it past its fifth year.
The quicker money begins flowing into your business, the sooner your cash flow problems will be solved.
When your pricing strategy is not working out because of cash-flow problems.
Give us a call and we’ll assess on improving your cash-flow process. Don’t miss out on this opportunity.
You can download our whitepaper here.