Cashflow is the buzzword used to describe for all of the money that is coming into and going out of your business. In financial terms, it’s the culmination of accounts receivable and accounts payable.

Cashflow is not about sales or revenue, it’s about the actual, cold hard cash that is made available (or unavailable) to your organisation. Cashflow is about the movement, or the flow of money that comes in and out of your business.

Cash flow is extremely important for a small business. Even if you don’t consider yourself a “money person,” you will be required to do some basic business accounting in your business. As a small business owner, if you don’t pay close attention to your cashflow you could find yourself in a situation where you no longer have enough money left to continue operating your small business.

A cashflow problem can be best defined as a scenario where debt payments outweigh the amount of money that is coming into a business. A business becomes insolvent when it is unable to meet its financial liabilities, and despite this not necessarily the same as having cash flow problems, there is in most cases a close connection between the two.

For your business to steer away from insolvency you will need to be honest with yourself and the state of your business. You might be faced with a temporary issue that can easily be resolved, or maybe you’ve been in denial and there are serious underlying issues which will take radical steps to rescue the business.

Once a business begins to experience cash flow related issues the biggest concern for directors is being faced with a winding up petition by creditors which means your company may potentially be a matter of days from liquidation.

Cashflow related problems usually lead to a number of issues which can result in formal insolvency proceedings unless you seek support from a professional insolvency specialist at the earliest opportunity.

There are many different ways cashflow can be improved, such as by increasing income, improving profit margins or by reducing the debt repayments to creditors via negotiations.

Here are some major reasons for cashflow related problems

Late or Partial Payments

Outstanding payments are one of the biggest challenges SMEs experience when it comes to cashflow. Research published in 2019 showed that almost 60 percent of invoices are paid late. This is a serious issue because it means that you have done the work, but you haven’t received the money for it. Not only are you out the profit, but you’re also out whatever money it cost you to complete the job.

This can be solved by paying up front, sending in invoices as soon as possible, implanting automated payment reminders on your invoices, providing multiple payment options or offering discounts to early payments and payments made in full and a charge a fee for late payments.

Rapid Growth

It is always exciting when a business grows quickly, although this is in many cases a good thing you are likely to face growing pains along the way.

As you make more money it is important to keep in mind that you will have to spend more money to run your business. For example; your overhead could rise because you are outsourcing more work, you will need to hire more new employees, you will have to upgrade tech tools to higher plans, or you might be required to invest in more inventory upfront.

The burden associated with this problem can be lessened by; implementing a tech stack that can grow with you. This should involve you identifying your future business goals and determining your needs from there. Another way to lessen this problem would be to generate some forms of passive income to compensate for a reduced income stream, or even fund some of your other business growth. You should also only hire new staff when it is absolutely essential and also way up the pros and cons of hiring new staff before bringing them into your organisation.

Spending Too Much Money

Although there are many situations where you will be required to spend money to make more money, there is a huge problem that businesses faced in regards to spending too much money. If you come to a realisation that you are spending too much you must think of ways to reduce the amount you are spending.

This could be achieved by a number of ways such as; automating repetitive tasks that you previously hired people to complete. You should also map out a business plan and financial milestones you want to meet before you make different investments. You should also monitor your ongoing expenses and categorize them. See which ones are the highest and think of ways to reduce the biggest expenses first.

Challenges Related To Sales

You might have overestimated your sales volumes or you might find yourself in a situation where your sales have inexplicitly began to slow down. Whenever your revenue begins to decline, your cashflow will also suffer. Sometimes your decline in sales is caused by external factors which could be out of your control such as the covid-19 pandemic.

Sometimes you need to look internally to solve your problems for example; what can you do to improve your marketing strategy in order to better resonate with your target audience? 

There are a number of ways to solve this problem and the solution will be dependant on the reason why aren’t seeing any sales. It is crucial for your to figure this out as soon as possible.