For small to medium-sized businesses, the digital age can be a confusing place when it comes to financing options.
Managing traditional financing was fairly simple by today’s standards. In decades past, this was as simple as hiring an accountant to oversee your finances and a financial advisor for your investments.
But in the digital age, your finances are just as complicated coming in as they are on the investment end. Cash flow problems are common, but so are good cash flow solutions.
This handy guide can help you avoid them and stay on the path to profit.
Slow Paying Clients
This is one of the most common cash flow problems businesses face. Sometimes clients can be slow to pay, which in turn passes the problem of cash flow from the client to you.
This is especially true when more than one of your larger clients is slow to pay. Projected cash flow should account for slow pay and other client cash flow concerns.
Planning for slow pay clients requires a twofold approach. The first step is to address the issue with clients.
If the client is typically reliable but consistently slow, develop terms that encourage and reward faster pay.
But if your client has an inconsistent payment record, it may be time to move on and make room for better clients who will keep their payment arrangements for years to come.
The second step is reaching out for a stopgap funding source to bridge the 30-day to 60-day period when slow pay is a problem.
Poorly Timed Investments
When business is booming, this can seem like the perfect time to invest in growth. However, this is where many young businesses get into trouble.
Exercise caution before you decide to spend impulsively on new resources for your organization. A profitable month doesn’t always indicate a consistent trend.
Minor business downturns and slumps can also turn into serious problems if you have overspent.
As a business owner, each purchase you make for your business needs to be carefully weighed and researched. Make sure to follow reviews and testimonials before investing in a new product.
Here a few of the more common impulse investment pitfalls small businesses fall into:
- Jumping into major equipment upgrades on impulse
- Making unnecessary POS or software changes
- Not checking out reviews
Growth Expenses and Expansion
Even if you have invested wisely and avoided unnecessary expenses, you can still find your organization struggling with growth expenses that exceed income.
One of the great challenges of a growing business is trying to accommodate larger clients and jobs.
Businesses can easily find themselves accepting offers that require more staff or greater resources knowing the investment will soon pay off.
However, the increased scale of business means added strain on your business as a whole, and your cash flow can take longer to catch up than expected.
When it comes time to consider taking on work that will require adding staff or other expenses, be sure to fully explore the implications beforehand.
Developing a complete understanding of what expenses this would mean and how quickly your cost increase will pay off can help you make the most informed decisions.
Lack of Profit and Market Fluctuations
This might seem like the most obvious of cash flow problems, but in reality, it’s much more complicated. The truth is that many businesses can take years to earn a profit.
A good business owner or head of finance will understand profit as a gradual increase on an investment. However, consistently coming in under your projections for profit is not a sustainable business model.
Even when your business has a perfectly solid cash flow projection and profitability, unexpected market fluctuations can become a headache quickly.
You also need to plan for seasonal market changes that may repeat from year to year.
Cash Flow Projection Service
When it comes to business in the Information Age, your cash flow and profit goes far beyond simple profit and payment projections.
Cash flow forecasting takes simple projections to a deeper level, exploring data and analytics far beyond the raw numbers.
Consider using cash flow forecasting services that give businesses the chance to break down the factors that disrupt the path to profit and solve them to get back on track for profit and success.