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7 Most Common Business Cash Flow Problems and Solutions

Business cash flow problems can be a nightmare for many business owners. In fact, if you’re in business long enough, you’ll experience cash flow problems.

The good news is that there are things you can do to reduce the amount of times you run into cash flow problems.

And if you follow the seven solutions in this article, the business cash flow problems you face will be nowhere near as bad as they would otherwise be.

Solving cash flow problems means you can focus on what really matters in your business.

1. Bad Bookkeeping

Bookkeeping is where cash flow starts.

With bad bookkeeping you will not actually know for sure the financials of your business.

Without knowing the financials of your business, you will not be able to predict and model your cash flow.

Solution: dedicate time and money fixing your bookkeeping.

The solution here is straight forward but many business owners are too caught up in the day-to-day of running a business to do it.

We recommend getting professional help to fix your bookkeeping if it is currently done poorly. Read here for what professional bookkeeping services include.

2. Debtors too high

Debtors can be a massive problems for businesses. Especially in tough economic times.

Once the bookkeeping is right, the problems can become clear. A very common problem is high debtors.

Your debtors are the people who owe you money.

Solution: have clear systems and procedures in place for your debtors.

Read our article here for how to get paid faster in your business.

3. Unclear terms and conditions

Your terms and conditions are a key part of getting paid faster and reducing your debtors.

Unclear terms and conditions can be a massive problem for business owners, particularly if there is a dispute over payment.

Your terms and conditions will also set out when your customer pays.

You can be creative with when they pay you. Different options include payment upon completion of work, payment upfront, or some mix of the two.

Solution: Put time into your terms and conditions and include PPS registration

PPS registration stands for ‘personal property and securities register.’

PPS registration means you can register the money you are owed if you have a clear contract in place.

This puts you at the front of the line for getting paid, and therefore is helpful for cash flow.

4. No cash flow modelling

Not modelling your cash flow means you have no idea what cash your business needs, and what is might need in the future.

This can lead to all sorts of problems, including not being able to pay your bills or even wages.

Lack of cash flow modelling can be a fatal error for many businesses.

Solution: put time into cash flow forecasting or modeling.

If you have a very small business you can do this in house.

However, for most businesses, external help is the best way to get this done.

The best option for most business is hiring an outsourced CFO. Read more about outsourced CFO here.

5. Bad gross profit margins

Your sales figures are great and you have low overhead but you still aren’t making much profit?

This situation is a very common case of bad gross profit margins.

Your gross profit margin indicates what percentage of each job/sale is profit.

Read more about the difference between gross profit and net profit here.

Solution: increase efficiency on jobs.

There are multiple ways to increase efficiency on jobs.

Common ones include technology solutions or allocating the right staff to the right work.

Sometimes the best way to increase job efficiency is to consult with an external advisor as they will be able to offer a new set of eyes.

6. Not reviewing overhead expenses

Overhead can make or break your net profit.

A very common mistake businesses have is not getting their overhead structure right.

Solution: regularly review your overhead expenses.

Your overheads should be clear if your bookkeeping is clear.

So getting step one of this list right is critical for the solution to problem seven.

Common overhead expenses include staff, subscriptions and licenses.

When you review your overheads, make sure you still getting value for your expenses.

7. No immediate cash

The situation many business owners never want to face, but all will likely face at some stage: no immediate cash.

Having no immediate cash can be scary, but it’s worth remembering that it most business owners face it at some stage and many overcome it if they keep calm and focus on a solution.

Solution: raise capital using a bank or third party if necassary.

Speaking to a bank or third party lender can provide a solution to having no immediate cash, but there are caveats:

Firstly, ensure you have gone back up the list above and have done everything you can to get paid from existing customers who owe you money.

Secondly, make sure you are fully across the terms and conditions of the capital you are raising.

It is also an option to sell part of your business to raise capital, but if you are doing so we highly recommend seeking professional advice first.

If you have found these problems helpful, don’t hesitate to get in touch to see how we might be able to assist you.

Our outsourced CFO package provides cash flow solutions and forecasting for businesses.

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