When your small business suffers from cash flow problems, you risk having your financial problems spin out of control.
You may miss payments to important vendors or even make critical tax errors like delaying payroll tax payments that lead to severe fines.
If your small business is consistently short on the cash you require to keep operations running, it’s time to take action. Keep reading to discover some helpful solutions to the cash flow problems killing your small business.
#1. Reduce Your Overhead Expenses
When you spend too much on overhead, it’s easy to fall behind everywhere else. Too often, small business owners spend money on things they don’t need and lack the cash flow to support.
Are you spending too much on a marketing and advertising campaign that isn’t delivering results? Do you have more employees than you need? Are you decorating your business location with expensive items that don’t increase revenue? Do you even need a business location, or would working out of your home suffice?
Take a close look at your expenses and eliminate items that aren’t absolutely necessary for your business to succeed.
#2. Increase Your Margins
While it’s important to keep your costs comparable to or lower than your competitors, engaging in a price war could have devastating consequences on the financial health of your business.
If you’re operating with low margins, you need high volume to make up for the small profits you’re earning on top of the cost of goods sold. Of course, operating with high volumes often means increased overhead expenses.
Spend some time analyzing your margins and your prices. If you can raise your prices, you may be able to improve your cash flow. If raising your prices on certain low-margin items would make it difficult to keep up with your competitors, consider removing those items and focusing on items that earn you a healthier profit.
#3. Stay On Top Of Receivables
Are you extending credit to your customers? Are you relying on credit from your suppliers? Are the terms you’re offering your customers longer than the terms you’re receiving from your suppliers?
If you answered “yes” to those three questions, expect to have serious cash flow problems. The credit terms you offer your customers must be in line with what you’re getting from suppliers. Otherwise, you’re going to fall behind on your bills.
Additionally, be sure to stay on top of your receivables. If you lose track of which customers owe you and when payments are due, you’ll be paid late — or not at all.
#3.5 Work With A Small Business And Tax Advisor
When you’re in the thick of running your small business, managing customer relations and maintaining day-to-day operations, it’s easy to lose perspective.
Working with a small business and tax advisor not only helps alleviates the burden of bookkeeping and taxes, but it also gives you an outside perspective that helps to manage the financial priorities of your business.
Taking control of your cash flow issues allows you to pay your bills on time and avoid further financial complications. Make the fixes above to put your small business on the path to success.