Do You Have a Cash Flow Problem?

Do you have a cash flow problem

6 Common Cash Flow Problems

  1. You have unpaid invoices, and customers are slow to pay
  2. Your pricing is too low and you are losing margin
  3. You’re growing quickly
  4. Your expenses are higher than normal
  5. You don’t have cash on hand
  6. Your data is not up-to-date

Good cash flow is critical for a financially healthy company. 

It helps ensure you can meet your financial obligations throughout the month, even if you have a pile of invoices yet to be paid by your clients. 

However, your business will struggle financially if you run into cash flow problems. This can lead to issues with payroll, paying vendors, covering costs in emergency situations, and more.

To avoid these issues, you need to know how to spot cash flow problems as they arise.

What Are Common Cash Flow Problems?

Numerous situations can impact your cash flow. You must keep a consistent, close eye on it to ensure your business remains ahead of the game. 

If you notice any of the following 6 signs, it’s an indication you need to address the problem before it starts to affect your cash flow.

cash flow problem in business

You Might Have a Cash Flow Problem If…

You have unpaid invoices, and customers are slow to pay

It’s simple. You are not getting the money you worked hard to earn. That is no easy thing to overcome. 

However, it’s common for many businesses. Studies show that nearly 60% of invoices are paid late. This ties up your cash flow and leads to financial problems.

There are several solutions here, which can be automated and solved by utilizing accounting software like Xero.

  • Invoice submission and follow-up
    • Send invoices electronically as soon as possible to ensure your clients have the ability to act fast and have more time to pay.
    • Automate payment reminders on unpaid invoices
    • Easily see if your customers have actually opened/viewed your invoice.
  • Payment methods
    • Offer them multiple methods for making electronic payment. They’ll pay sooner if the process is easy for them.

The more you prompt your customer, and the easier the payment process is, will speed up your average days receivable with your customers

For customers where you are still having issues, offer payment plans on existing balances, plus ask these clients for deposits before work is done or the product is delivered.

You Might Have a Cash Flow Problem If…

Your pricing is too low and you are losing margin

The cost of running your business is always changing, so should your pricing.  Pay attention to inflation impacts on your business and make sure to adjust your pricing accordingly.  Did you mismanage your labor and pay too much overtime?  Margin is the lifeblood of your business and you should constantly be checking its health.

cash flow problem

You Might Have a Cash Flow Problem If…

You’re growing quickly

It’s necessary for companies to spend money to make money. While growth is fantastic, it also means you need to put more money aside to meet your increased cash flow demands.  Depending on your profit margin, it could take you over a year to become cash flow neutral/positive on this growth.

These demands include spending more money in areas like: 

  • Hiring employees
  • Paying for new equipment
  • Building up inventory

These costs are necessary but expensive, and if you don’t have the necessary working capital reserves this growth could put your business on the brink of bankruptcy.

In this situation, it is best to build systems that grow as you grow. Be sure to consistently monitor your expenses closely to notice when cash flow is drying up too quickly. Try to spend only what you really need to spend.

You Might Have a Cash Flow Problem If…

Your expenses are higher than usual

You can feel when you’re spending too much, and your expenses will show that in your books. Keep in mind that inflation is a real concern, but it is nothing you can ignore.

To help here, build a solid budget and stick to it as closely as possible. Only spend money when it is in line with your budget to gain a bit more control and help with cash management.

Common cash flow problems

You Might Have a Cash Flow Problem If…

You don’t have cash on hand

Many companies run into unexpected expenses. If you notice this happening and you do not have the cash to cover those costs, that’s a clear problem. 

To see if this is happening to you, divide your cash balance by your daily outflows. This shows you how long you have until you run out of cash.

A solution to this could include talking with your vendors to select payment days that follow cash influxes. You should also take the next quarter to focus on building up your cash flow until you get to a point where you are comfortable with the amount of cash you have on hand. 

You Might Have a Cash Flow Problem If…

Your data is not up-to-date

A lack of current data is a common problem for many businesses. It may look like you don’t have enough cash flow for your business to operate because you lack accurate, up-to-date information. If you are not tracking your data close enough, it creates financial risks.

The most important change here is to use a bookkeeping system, like Xero, that tracks everything for you. This way, your numbers are always accurate. 

A good system will also report your cash flow at all times. This enables you to make better, real-time decisions.

Work with an Experienced Accountant to Avoid Common Cash Flow Problems

Healthy cash flow defines the success of your business

It’s essential to spot problems with your cash flow before they grow into larger issues. Spotting these problems as they arise allows you to make quick changes and keep your business on track. 

For help with cash flow management, download our free cash flow guide for some more tips, or contact U-nique Accounting to book a quick call.

We are always here to help!

Matt C

By MATT CIANCIARULO

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