Cash flow issues & challenges you should know about to solve for them
Solving for cash flow problems helps the survivability of the business to pivot when needed. Discover cash flow solutions that can help you have the cash flow needed.
In the world of business, the only certainty is change. No one can be sure what the future holds for your market niche. Frequently, product launch expenses end up more than expected, and new revenue streams may take longer to generate and collect. Preparedness for what may happen is the secret to handling the challenges of having enough working capital in the uncertainty of the business.
Ensuring your cash flow never runs out can give you more time to make changes for whatever the future holds. Cash flow helps boost the survivability of the business to pivot when needed.
How to overcome cash flow problems?
The following cash flow management strategies can help ensure that you have the cash flow needed for solid business funding:
Monitor your cash flow statement
Too many business owners only focus on the profit and loss statement. But one of the leading reasons companies go out of business is because they run out of cash to pay their bills. Therefore, it’s critical to monitor your cash flow statement monthly. It will show if your business added or lost cash during the month.
Your cash flow statement will also show where your cash got spent during that period. You can also use bank statements by comparing the beginning and ending balances.
Monitor your days’ sales outstanding (DSO)
Your DSO is how long it takes for your customers on average to pay their invoices.
For example, if the average time it takes for customers to pay is 60 days and you can cut it to 30 days, your company’s cash flow could increase by 50 per cent.
One way to cut the DSO is to send invoices ahead of time and follow up to ensure they get paid within the terms.
Determine how often your inventory turns
The more product you have in inventory, the more cash flow you have likely invested. Also, the less time a product stays on your shelf, the less cash is left in that inventory.
Most accounting systems will report the aging of inventory. From here, you can figure out how often a product needs to be re-ordered annually.
Ask for longer payment terms every six months
When you consistently pay your vendors on time, you might be more likely to negotiate an extended payment term from that company.
When you pay your bills on time, ask if your terms can get extended another week or more. The longer you have to pay these invoices, the more cash you can keep inside the company.
Challenge your basic business assumptions
In the long run, more profit produces more cash flow. Explore how your company can increase its gross margin. Can it sell to customers at a lower cost?
What parts of the business always make a profit, and how can you leverage it? Which are the most profitable customers?
Explore cutting costs even if revenue hasn’t gone down. The best-growing businesses have robust working capital and cash flow management system for both good and bad times.
This article contains general information and is not intended to provide information that is specific to American Express, or its products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
The material made available for you on this website is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
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