Are you struggling with your business cash flow? You're probably wondering how you got here. After all, nobody plans to have months where their revenue stream is running dry.
To start figuring out what went wrong and how you can reverse course, buy a Sherlock Holmes cap and put it on (okay, don't—you'll look ridiculous) and start looking for the reasons your business cash flow has stopped, well, flowing. While there are plenty of things that can cause shaky finances, I'll give you five.
1. Tinker with your business model.
Maybe the reason you don't have cash coming at the right times is that you need a few more revenue streams.
Rebekah Epstein is the founder of fifteen media a public relations firm in San Antonio, Texas.
“In the past, I have struggled with keeping positive cash flow because most of the clients pay a big sum, once at the end of the month," Epstein says. “This previously caused me not to have a lot of cash during the month, while I was waiting to be paid.
"One way that I have tried to fix that," she continues, "is to offer workshops and webinars throughout the month, so I am constantly getting money from different streams of revenue."
Diversifying your audience and offerings is a smart path many businesses have taken. For instance, hotels don't always only cater to tourists—they offer their unused conference rooms for business meetings, baby showers and weddings. And many lawn services end up doing snow removal during the winter months.
The right amount of multiple revenue streams can help end a cash-flow problem.
2. Be conservative when forecasting your business cash flow.
Are you often a tad too optimistic when it comes to forecasting cash flow? That could be a reason why you're having issues.
“For example," he continues, "I will look at the revenue and operating expenses from the year prior and work under the assumption that the current period will not be as strong. I want our company to be prepared for the worst-case scenario. We need to be ready if an unforeseen expense pops up or some of our customers are late in making their payments."
3. Be less eager for work.
When you're in a rush to nail down that next big deal, you can sometimes create future problems—and that can have a negative effect on business cash flow.
Marco Castelan sees this a lot. Castelan is a co-founder of The Navio Group, a Minneapolis-based business consulting firm that works with its clients to improve internal management and productivity.
“Getting in the door is often the hardest part, and as a result, there is a temptation to sign an agreement and get to work quickly," Castelan says.
You may sign a deal without having that important conversation about when your business will get paid—or you might find that the parameters of the work are too onerous for your company to really make much money.
If you do rush into a big project and it doesn't go well, you may not work with this new client all that long, Castelan points out.
“By dealing with the initial contract with patience and a view towards how to make the agreement last years, rather than months, a business can help its future self avoid trouble," he says. “While one deal or one late check may not catch up to a business right away, it can snowball out of proportion very quickly."
4. Set up a better system for collecting revenue from customers.
If your business cash flow is slow due to how often you're waiting for checks to come in, I don't need to tell you why you need a new system.
Not every business gets paid immediately, as you well know if you own a company that has to wait for revenue to come in.
“For most customers, paying bills is not necessarily at the top of their priority list, and as a result, it can sometimes fall off their radar," Castelan says.
He has a couple ideas for business owners looking to create that better system.
“By putting in software [that] flags overdue invoices, and then creating the necessary human interventions to make good on the warnings, a business can keep its cash flow more consistent and predictable," Castelan says. "Often it only takes a gentle reminder for a customer to click an approval box or send a note to their finance department, but by ensuring your business stays on top of it, you help bring your invoice to the top of the pile."
5. Talk to your employees.
Could the reason why you're having issues with business cash flow be tied to money-draining practices? You'll never know if you don't start talking to people and asking questions.
Maybe you have employees who are using up certain resources faster than they should be, such as a bartender overfilling glasses for customers, causing you to run out of liquor faster.
Maybe better training would lead to your workers being more efficient and handling more customers during the day, leading to more revenue.
Or, of course, it could be something completely different.
Stanley Jaskiewicz is a Philadelphia business attorney who often represents small and family-owned firms. He says smaller firms get into trouble sometimes when they hire someone who came from a larger company.
“The most common error I have seen occurs when former corporate employees spend the same way as they did when employed by a firm with greater resources," he says. “Big-firm alumni often do not understand the different realities of entrepreneurship and of the small firm."
So, as you can see, there are a lot of reasons for business cash flow issues—and you shouldn't feel badly if your company has some. But don't let one of those reasons be that you weren't curious enough to figure out what was going wrong.
Read more articles on managing money.