Why Small Businesses Struggle with Cash Flow

We’ve all heard the phrase “Cash is King”, and while we don’t want to sound a like broken record on repeat, this statement his very real. Nothing beats a business that can quickly liquidate cash to meet unexpected expenses, or to jump on once-in-a-lifetime opportunities.

Even if a rival company might have the upper hand on the overall net value, the competitor needs cash to operate.

Consequently, the significance of having cash on hand and general cash flow has an even more substantial impact on small businesses. In a ruthless competition to become prominent, all it takes is one slip-up to lose an edge or for someone else to take the lead.

On that note, today, we will be addressing the issue of cash flow and learn what you can do right now to resolve these struggles.

Stay Determined and Follow Through

Before anything else, we want to preface this guide with an important warning. Understand that for any business to addresses its weak areas, overnight solutions do not exist. And as much as we want things to work out magically, any industry demands the investment of hard work and time.

So take a page out of undergraduates’ books who work tirelessly through internships and workplace training courses, and stay determined. Don’t stop halfway, but instead stick with your guns and follow through to see the change you want.

Do Away With Unnecessary Expenses

Cash flow works both ways in business, activities that generate an inflow of cash and expenses that create an outflow where money leaves the company. However, not all costs are made equal, and frankly, some are unnecessarily more expensive than others. So if you want to better cash flow, an excellent place to start is doing away with all the unnecessary expenses incurred through the normal operating cycle.

Try going through cash flow and income statements, and pinpoint areas that you can effectively limit without affecting your business. From your utilities down to transportation, leave no stone unturned, and you’ll thank us later.

Save Whenever You Can

Small businesses don’t have pockets as deep as prominent companies in the industry, which means you need to save whenever possible. You need to get the most out of your money’s worth, because every penny counts, and soon enough, you’ll see the savings stack up. Promptly pay for your supplies to get those purchase discounts, buy in bulk to get items at better prices, and build beneficial relationships with other businesses.

Modernize Your Operations

While small businesses can get away with traditional operations, you’re cutting yourself short and limiting your options. Use project management platforms to reduce the price of office supplies, implement social media marketing strategies to leverage advertising expenses, and outsource trivial tasks

Encourage Prompt Payments

Receivables and payables move the most money in and out of the business, which means they play an essential role in the overall cash flow. And to resolve the lack of cash on hand, you’ll want to create a business model that encourages your clients to make prompt payments. And as a result, you get your money quickly, and they get to reap equal benefits.

 

• Offer Discounts: An excellent method of encouraging your clients to make prompt payments is by offering purchase discounts when they pay within a certain period. This method works best when you implement a level-up strategy, wherein the earlier they pay, the bigger the discount, and it decreases as time goes on. For example, the first ten days nets a 5% off the invoice price, within 15 days nets 3% off the invoice price, and 30 days offers no discount.

• Penalize Late Payments: To compliment your discount offers, you can also work the other way around and penalize late payments. This method will discourage clients from making late payments as they incur interest on top of the invoice price – all the more reason to pay early.

 

Experiment With Pricing

Last but not least, if you want to generate more cash flow for your business, then it might be time for you to revisit the pricing for your products and services. The market is always susceptible to volatility and changes, and all it takes is for one major event to tip the scale in a particular industry. Take a good long look at your pricing and see if it is justifiable for the value your clients are receiving.

Match Your Competitors

A good way of gauging your prices is seeing if they are up to market standards alongside your competitors. If your price is set way below your competitors, then you might be low-balling yourself. So update your pricing, but don’t go too overboard that you run the risk of dissatisfying loyal customers.

Try A Different Pricing Model

While one-time payments work in most cases, if your product fits the description, you can also try a subscription model with added benefits. You can offer add-ons to give customers extra options and create an additional stream of cash inflow for the company.

Invest Long-Term

Cash flow plays a crucial role in reaching your business goals. However, always remember that you’re in this game for the long-term, so invest and think of the future. Take these practices and implement them into your business, and you are bound to see significant improvements in your cash flow.

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Good luck!

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/