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  • Paul Carrano

Fixing Cash Flow Problems

Running a business is a roller coast ride. When things are going well, you feel like you can do nothing wrong, but when things are not going so well, it can feel like you are trapped in a hole you cannot get out of. Every business owner has gone through the highs and lows of owning a business and being almost two years into a global pandemic, many business owners have seen more lows than highs over the last few quarters. It is vital to manage cash flow in a way that balances out the highs and lows.

The truth is that managing cash flow is a vital aspect of a business. 82% of businesses that fail do so due to cash flow problems. If a business has no plan to deal with a cash flow shortage, the chances are that the business will fail.

Here are a few things you can do to improve cash flow.

Adjust your business plan and pricing structure to improve profit margins.

Which areas of your business are the most profitable? Which are the least profitable? When looking at the least profitable parts of your business, you have to ask yourself if those areas can become more profitable or are they just dragging your business down. One option is to shift your focus to the areas of the business that generate profits, but before you jettison parts of your business, you should look if there is something you can do to increase the profit margin. Optimizing your pricing structure while identifying areas of waste or unnecessary expenses can help to boost your profits on poorly performing products or services.

Accelerate your Receivables

A business might be going great, but if the money stuck in receivables does nothing for you except cause additional stress on you and your business. There are ways to accelerate your receivables and give your business and cash flow a needed boost.

  • Require a deposit up-front – Many service businesses will start work without any payment. Depending on your business, performing the work may have costs associated with it, so you put those costs on your credit card or you dip into your cash reserves. If you wait to send out your invoice when the job is done, you can be waiting a month or more even if the payment is on time. If you require partial payment up-front, you have money coming in the door and you are sending a signal to your client that you are on top of your invoices and late payments are not acceptable.

  • Send Invoices immediately – Many people will wait to send invoices out on a specific day of the month. If you send out invoices on the first of the month, and you finish a job on the third, are you going to wait a full month to invoice the client? Even if they pay the invoice in a timely manner, you can be waiting months for the money from a job that has long been completed. Send your invoices right away. When a job is done, it is at the forefront of the client’s mind. If you wait to send an invoice, it might not get the attention it needs. They have moved on to other things. If the job you are working on is a long-term commitment, send invoices every couple of weeks to cover your costs and break down the overall cost of the job. Sometimes several smaller invoices are better than one giant one at the end of the job.

  • Call clients that owe you money. Don’t rely on email or texts. Call past clients that still owe you money. Offer to allow them to pay off the total amount over time. Receiving a partial payment is better than receiving nothing.

  • Give your clients payment options. Cash may be king, but if your chances of receiving payment increases by allowing clients to pay by credit card, it may be worth looking in to. While there are processing fees, paying a small fee is better than having all that money sitting in your receivable account where it does nothing for your cash flow

  • Negotiate Your Payables

Giving your clients options on the money they owe you will increase cash coming into your business. Looking for options can also help to stem the flow of money leaving your business. Be completely open and honest with vendors, especially ones you have an ongoing relationship with. See if they would be willing to allow you to pay off what you owe over time as opposed to one lump sum payment. When it comes to credit card debt or paying utility bills, there may be options available to reduce the amount you owe, or at least give you breathing room by allowing you to delay payment or pay off what you owe over the course of several months.

Take a loan, with caution

The first thing people tend to think about is taking a loan or a cash advance on credit. While this could relieve an immediate cash flow issue, you have to look to see if your cash flow problem is a short-term issue that can be resolved or if it is a long-term problem with your business. If cash flow is a long-term issue with no end in sight, taking a loan is not going to make things any better. You may be able to pay off some of your immediate debts, but a loan not only needs to be paid off but there is going to be interest associated with the loan. As an added problem, if you fall behind on repayment of a loan, you are now looking at a deeper cash flow problem, and you can also destroy your credit in the process.

Cut Expenses

When was the last time you looked at your expenses? Are you spending more than you need to for your business? There is a saying that you have to spend money to make money, but you have to be smart about the money you spend. If the money leaving the business doesn’t help the business to make more money, then you have to seriously consider whether that money needs to be spent. Even if an expense is necessary, are there less expensive options available? When you have cash flow problems, every dollar that doesn’t leave the business is a step in the right direction.

Let Certain Tax Advisors help you with your Cash Flow.

Financial reports can make your head spin if you don’t know what you are looking at. When it comes to basics, a profit and loss statement is a report of your revenues and your expenses. Revenue minus expenses equal profit or loss. Let Certainty Tax Advisors look into your finances to see why you are having cash flow problems and let us help you make your business profitable.

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