5 Common Cash Flow Management Problems and Solutions in 2023

It is challenging to standardize and centralize cash management processes when a company deals with multiple banks, ERPs, and financial systems. Without a centralized system to synchronize various systems, standardizing can be difficult. If your overhead costs are too high, your small business is going to experience cash flow problems. Costs like high rental costs, expensive car leases and travel can eat into your profits quickly. You have to sell more just to cover your overhead costs and break even.

• Some business loans are available even to businesses with bad credit, and some online lenders consider factors other than credit ratings to determine if a company qualifies for financing.
• Whenever possible, use free cash flow to repay the loan and bring your balance (and interest costs) down.
• To increase revenues, consider alternative profit-making opportunities, such as developing your products, targeting new markets, trying new pricing, or offering targeted discounts.
• Your overhead could increase because you’re outsourcing more, you need to hire more employees, you have to upgrade tech tools to higher plans, or you need to invest in more inventory upfront.
• If you’ve borrowed too much, or your loans are particularly expensive, these costs may outweigh any benefits from the initial loan.
• But there are a whole host of potential cash flow problems just waiting to cause issues.

This is commonly a problem for start-ups and SMEs who are still in their initial growth phase, establishing their brand. Also, processing delays may occur depending on jurisdiction and bank used. What’s more is that 47% of small businesses would need to resort to their personal funds were they to face a two-month loss.

Low Profits

It should be seen as a major red flag, and immediate action must be taken. You have cash flow problems when the cash generated by your business is less than expenditures – cash outflow exceeds the cash inflow. Following the implementation of the new cash flow structure, the next step is to ensure having an automated workflow in place to provide users with feedback on the accuracy of their data. By automating routine tasks, cash management teams can focus on higher-value activities such as strategic planning and decision-making.

A cash flow budget is an estimate of cash you expect to receive and cash flow you expect to pay during a period of time. If you want to create a cash flow budget for the next 30 days, project how much cash you expect to receive and spend in the next 30 days. However, since you’re here, reading about possible cash flow issues, it’s safe to assume you’re a proactive planner looking to solve problems before they even arise. Reducing expenses and cutting waste is often the key to sustaining your business and achieving profitability. Stop any nonessential services, move to lower-cost suppliers, review payroll, and consider letting staff go.

Accept Credit Cards

It’s critical to review historical cash flows before implementing a structured forecasting workflow. This gives valuable insight into the nature of current cash flow movements, allowing users to spot any flaws or discrepancies. A cash flow forecast is also a great resource to help you make important decisions, such as when to make a capital expenditure, or whether or not to cut an expense. Your profit margin is an important metric to know when analyzing prices.

• However, if you don’t have the cash to pay them when it comes to the end of the month, you’ll find yourself in need of credit.
• Cash utilization is improved by having a single dashboard view of the cash across all banks, regions, companies, and currencies.
• Indeed, credit cards, debit cards and other types of electronic fund transfers are much faster and more reliable.
• But by being aware of what to look out for, you give yourself a better shot at making the right decisions early on.
• Additionally, you should also reconsider payment dates to vendors and from your customers to minimize gaps and keep cash flow balanced.
• Reducing expenses and cutting waste is often the key to sustaining your business and achieving profitability.

With electronic payment processing, there’s often a delay between the time the payment was made and the moment the cash is accessible in your account(s). To start, it’s helpful to consider some of the more common cash flow problems for SMBs and what you can do to mitigate them. Noticing one of these symptoms in your business isn’t necessarily an emergency. There’s always uncertainty in business, but keeping your cash flow forecasts accurate and up-to-date, can help you face that uncertainty with certainty. Looking at last year’s sales should give you a good idea of what you will make this year. If a crisis or loss of sales has occurred, shift to a month-by-month reflection and build from there.

Get good accounting software

But when it happens too quickly or without a proper plan in place, it can end up backfiring. Accounting software provides visibility over your numbers, making it paramount to maintaining good cash flow. This is an opportunity for you to break your organisation back down again into its core processes. Examine your people, operational expenses, sales predictions, and the current market to figure out where your biggest wins and losses are happening.

Of all the primary reasons why businesses struggle with cash flow, one of the most cited is problems with late payments. While sometimes you need to spend money to make money, there’s also the issue of spending too much money. If you find your overhead is getting out of hand, it’s time to dig into where your biggest expenses are and how you can reduce (or even eliminate) them.

If these issues are not detected and managed early on, the business could be at risk of failure. If you operate a seasonal business, calculate your expenses for different times of the year and use the most expensive season as a model. Every business should maintain a cash reserve to cover expenses during slow or difficult times. Without one, you might need to turn to investors for capital, which might require you to give up equity, or you might apply for debt financing to cover costs.

• Businesses must learn and apply the different ways to improve cash flow and attain a 360-degree understanding on their cash movements.
• While it’s the goal for most small businesses, growth is not always a good thing.
• For example, a company may have numerous bank accounts across different banks, each with its own reporting format, frequency, and delivery method.
• To avoid growing too fast and running out of expendable cash, get a growth plan in place.