For business owners, cash flow shortages can be incredibly stressful and challenging to deal with. You may think that management and product issues may cause your company to tank, but the reality is that far more problems are caused by insufficient cash flow. When such a problem occurs, nearly all parts of your business operations can take a significant hit as they require daily funding and maintenance to be carried out properly.
Many businesses end up failing and shutting down because they could not avoid the cash flow issues they faced. These problems can quickly snowball until a company takes a complete nosedive you must be prepared once you face it.
Read on for a guide to surviving a cash flow shortage.
How Cash Flow Issues Arise
If you want to take action and develop a strategy to survive and manage a cash flow shortage, you must understand why and how it happened in the first place. With a proper understanding of where things can go wrong, you’ll be able to recognise a growing problem and take action long before budding issues grow into irreversible crises!
To help you understand what you might be dealing with, here are some of the most common reasons your business can end up with a cash flow problem:
- Poor Inventory Management: One of the most common catalysts of cash flow problems for Small Businesses all over Australia is poor inventory management. When this occurs, businesses accumulate waste and losses by having an excess of stock lying around that tie up valuable cash that could be used for other purposes.
- Delayed payments: Some businesses experience issues with their cash flow because of delays in payments owed to them. This results in a large accounts receivable balance. Whilst this usually correlates to more sales and a larger asset figure in balance sheets, the fact of the matter is that you cannot use them to pay for your day-to-day expenses until you actually collect the money owed to you. Unfortunately, this can lead to other issues such as difficulty in cash flow forecasting, leading to incorrect reversal steps along the way. You must proactively speak with your customers and ensure payments from them are kept up to date.
Preparing Your Business for Survival
After acknowledging the fact that you have a cash-flow shortage, you’re probably wondering what you can do to turn the ship around. For things to let up and help your firm enjoy much-needed stability in its finances again, here are a few key practices you need to follow:
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Double Down on Receivable Collection
To improve the effects of a cash-flow shortage, you must take your receivable collection efforts up a notch. This can be done in various ways, such as:
- Accepting pre-orders
- Requesting partial payment upfront (such as a 50-50 or 30-70 set-up)
- Sending out your billing faster
- Regularly calling past-due customers
- Offering mobile and credit card payment options
- Engage a debt collection service for long-overdue accounts
- Be very diligent with invoicing & collecting
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Negotiate for Lower Costs on Your Expenses
If you’ve been working with your suppliers or partners for some time, you have an advantage that you can use in the event of a cash-flow shortage. Having established connections and working relationships will give you the necessary leverage to negotiate for lower expenses. Fortunately, many vendors are amenable and flexible when lowering costs or charges during tight situations. All you have to do is reach out. There is no harm in asking!!!
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Ask an Expert to Help You Out
While there are many different things that you can do to ensure that you get your cash flow back on track, one of the most effective solutions is to enlist the services of an accounting service. With the help of an expert like MKS Group, you can have a skilled and seasoned professional review your financial position and implement the necessary measures ASAP!
Conclusion
Dealing with a cash flow issue in your business presents the need to act fast because of the implications that can seep in quickly over time. By watching out for key signs and implementing the necessary measures, you can prevent your finances from sinking and ensure that you return to a state of profitability.
MKS Group have services for you and your business to prevent this very issue, so taking preventative action could save you in the long run. Talk to one of our experts today and find out some cash flow tips to prevent you from trying to survive in a cash flow shortage! 9374 8400.
