Cashflow. You can’t have a conversation about financial constraints in any small business without mentioning it. In fact, you can’t have a conversation about business without mentioning cash flow.
The latest research indicates that 93 percent of businesses say cash flow is one of their top three priorities and the issues surrounding it don’t start and end with simply not having money available. There are several knock-on effects that stunt small business growth.
The large majority of entrepreneurs are scared of big contracts for fear of them causing major cashflow issues, and more than two-thirds say managing day-to-day business finances completely distract them from growing their business.
‘93% of businesses say cashflow is one of their top three priorities’
These would have been worrying statements a few years ago, but as the world tries to avoid a financial crisis and the cost of living crisis continues to put a major strain on people’s pockets, they’re a major concern.
Small company owners may and should handle the cash flow problem. Fortunately, there are three easy actions that companies can take to start seeing results right now.
#1 – Recognie cashflow
You cannot enter here blindly. Having complete control over your financial flow is the first thing you need to do. You must know when money is coming in and when you anticipate it to go. There are so many tools today that can be used to give that supervision, making use of the capabilities of open banking to gain a quick understanding of cash flow.
Visibility of your cash flow involves more than simply needing to be aware of your current problems. Use cash flow forecasting to identify areas where you’ll have cash flow gaps in three, six, or twelve months. It could be challenging to think about the fires you’ll need to put out in six months, but planning is essential if you want to ever break free from the cycle of maintaining cash flow.
However, if there is no answer, having complete control is useless. The following two methods may be used to deal with this.
#2 – Shrink the gaps
You can plan for the gaps if you know where your cash flow problems are. There are several basic methods for achieving this. Answer the following inquiries:
- Can you postpone payments?
- Can you advance any of your customers’ invoices?
- Have you sent timely invoices to each of your clients?
- Is it possible to cross-sell, up-sell, or increase pricing anywhere?
- Can I pay with a credit card here?
Look over every aspect of your company to find areas where these questions can be used. They seem straightforward, and you probably give most of them weekly or even daily attention, but they are crucial if you want to strategically solve cash flow issues.
Your next tool is a straightforward method of filling up cash flow shortages.
#3 – Plug the gaps
Step 2 is insufficient when there are substantial gaps between invoice payments and payments owed to suppliers. You must have the money you anticipate receiving in a few months (if the customer pays on schedule) in your account.
At this point in your trip, invoice finance will smooth out the humps in the road. Although it has existed since the onset of cash flow issues, it has not been widely used (or overused, which has caused some fairly negative opinions to develop at the mention of it).
Regardless of people’s reservations, it is the solution to the cash flow issue. It enables company owners to have a reliable bridge over a significant decline in cash flow and, in many situations, aids in the survival of startups.
Referring to some of the previous figures, it not only resolves cashflow concerns but also gives company owners the confidence to expand, accept significant contracts, and stop worrying about something as basic as when money is coming in.
Additionally, it makes it possible for company owners to make on-time payments to their suppliers, which may foster a climate more conducive to innovation and long-term economic success.
It is admirable how founders and business owners are so driven and determined to find solutions to challenges. But they also need a straightforward answer to this persistent problem. Founders may create the company they need and desire using this three-step procedure without getting bogged down in the details.