If you’re going to do well, you’ve got to learn how to avoid cash flow problems in business. Cash flow is the most important thing in business.
The moment cash stops flowing, your business starts dying. Just knowing how to sell and market your product is not enough, you also have to learn how to avoid cash flow problems in your business.
If your business is struggling, here’re some key ways to avoid cash flow problems in your business:
1. Start tracking your cash flow properly
The first place to check when a business is having cash flow problems is the bookkeeping and accounting system. Some businesses do not track their cash flow. Some do, but they don’t do it well. Therefore, they cannot get accurate and essential reports to monitor and measure cash flow.
2. Set up good internal controls
There are also cases where there is creative accounting. The accounts clerk is the same as the cashier, or there is a link between the two. As a result, they might siphon some cash and not record the financial transactions in the right way. So, management will not get the right financial overview of the business. Separate the two functions and set up good internal control systems to avoid thefts.
3. Forecast and troubleshoot financial problems in advance
Avoid problems by using good business management software and a dedicated accounts clerk to make tracking easy. Make the bookkeeping and accounting work easy with good business management software. Once you have accurate reports, consider doing monthly forecasts and cash flow analysis to troubleshoot problems before they emerge.
4. Don’t confuse profits with cash flow
A lot of businesses use accruals accounting. They calculate all sales as a profit. But there are credit sales and cash sales. To avoid cash flow problems in your business, separate profits from cash flow. You can generate profits from sales, yet delayed payments can cause problems in your business. Use the cash flow statement to track, monitor, and manage your cash flow.
5. Shorten your cash flow cycle to get payments faster
How long does it take to produce, deliver, sell, and collect the money from your customers? If your business takes ninety (90) days to collect money for goods/services delivered, you might face cash flow problems when suppliers/vendors need money affront before delivery. Can you receive 50% of the money and have the client pay the remaining 50% after completion? Consider streamlining, and shortening the cash flow cycle.
6. Invoice customers promptly and develop follow-up systems
To solve cash problems, develop new account receivable policies, and shorten the cash flow cycle. Send invoices on time, create automatic invoice reminders, chase overdue invoices, use multiple payment options, and consider offering a discount for on-time payments. These are some things to do to get cash in faster.
7. Track and manage operating expenses
If you are experiencing consistent losses in business, chances can be that you might have high expenses. Regular tracking and monitoring of expenses can help you cut non-essential costs. You can also negotiate prices to get a good deal and reduce operating expenses. Whichever way, track, manage and reduce your business operating expenses.
8. Increase your sales
Constant worry about money can take your eye off the ball. You forget to take good care of customers, implement marketing strategies, and sell more. Always remember that in business, sales equal income. The more you sell, the more money you make. To sell more, increase and intensify your marketing campaigns across multiple channels. When you sell more, you produce more cash flow to grow the business and deal with cash pitfalls.
