What’s keeping you up at night? Chances are good it’s a cash flow challenge

Stop counting sheep and starting counting dollar signs, thanks to these practical ways to overcome any cash flow challenge.

It’s well past the middle of the night. I’m staring up at a dark ceiling as the clock beside me is taunting me, getting closer and closer to blaring its alarm for me to wake up (a cruel joke since I haven’t even caught a wink). My mind has been racing laps like a Formula 1 of business problems…

How will I get everything done on my to-do list tomorrow? Is it possible to increase my staff to help out? Can we even afford that payroll? Will we be able to increase our sales to hit targets, and what happens if we’re low on inventory? Am I going to disappoint our best customers? Will there be enough money in our bank account to cover the rest of this month’s expenses? 

But the biggest dilemma keeping me up is that I know there must be a better solution to our cash flow challenges. I just don’t know who to turn to and how to even go about finding them…

Your clients have cash flow nightmares

The above scenario happens to every business owner. It’s probably happened to you, and your clients probably go through this constantly. At any stage of business, cash flow challenges can keep everyone up at night. 

Well-managed, efficient cash flow is essential for any small and medium business: without it, you’ll be in an uphill battle. However, it’s not easy to accomplish, and every company will hit a snag at one point or another.

According to a Mercator survey, almost half of all small businesses are concerned about their cash flow — and for good reason. Apart from being extremely stressful for business owners, cash flow issues can cause serious problems for companies and even lead to them going under.

 


Cash flow concerns are on the rise. The top 3 concerns facing SMB owners are:

Customer retention — 49%
Cash flow — 48%
Employee retention — 47%

— Source: Mercator



Below, we take a look at some of the most common cash flow challenges for small and medium-sized businesses and how to deal with them. And if you’re working with a client, you could make these steps part of a plan to help smooth out their financial roadbumps.

Cash flow challenge 1: Not having a cash flow forecast/budget

Some business owners are so wrapped up in growing their business that they forget to put enough time into managing its finances. Having a cash flow forecast and budget gives you far more control. 

Breaking down incoming and outgoing cash for every month of the year allows you to better plan for any unexpected surprises. It means that you will always be in the situation of knowing how much money is going where, so you never fall short. 

The solution:

  • Base your cash flow forecast on your company’s past performance: include fixed and variable costs plus one-off expenses. Remember to take into account potential shifts within your industry, economic downturns and customer trends. 
  • Maintain a monthly cash flow statement that gives you a snapshot of all the money that has come in and gone out of your business. This will help you to keep your cash flow forecast accurate. 
  • Make an expenditure budget and try to stick to it, otherwise you’ll derail your cash flow forecast. 
  • Revisit both your cashflow forecast and budget regularly, so you’re constantly adapting to change. This is key to avoiding serious cash flow problems. 
  • Similarly, growing an emergency fund that you can tap into for unforeseen, large expenses, will help keep your budget on track and save you the expense of having to take out loans.  

Cash flow challenge 2: Overestimating profitability/having low profit margins

 

Confidence and enthusiasm are great entrepreneurial qualities, but overlooking the cash flow facts can get you in trouble — which can be especially true for young companies. In fact, almost a third of small businesses don’t reach profitability in their first year: and 16% don’t reach it in their first four years. Unless you have considerable capital to fall back on, not making a profit can play havoc with any company’s cash flow. 

But for established businesses, the lessons are the same. Overestimating your profit can lead to staff leaving, unpaid rent and an inability to buy inventory. There are a few ways to quickly improve your company’s profitability. 

The solution:

  • Reduce your overheads. Look at any costs that are not essential for the success of your business. Do you really need to lease BMWs, stay at the best hotels or travel business class? Could your business operate equally well in a smaller, less trendy and cheaper location? 
  • Negotiate with your suppliers for discounts. If at all possible, trade earlier payment for discounts. 
  • Carry out some market research and see if it’s feasible to raise prices. Also, focus on products or services with the highest profit margins.

Cash flow challenge 3: Growing the company too quickly

Securing a new client and a huge order can be exciting, but it usually also means increased expenses. More staff and inventory or bigger premises can all put pressure on your cash flow. And you’re unlikely to receive payment to cover these costs until after you deliver to your new customer.

The solution:

  • Make sure you have the capital to fund any considerable growth until you get paid. 
  • Having a business line of credit in place can ease any cash flow issues from rapid growth. 

Cash flow challenge 4: Not having quick and reliable access to credit

Banks typically have stringent terms for lending to businesses. They want to see a healthy income, excellent credit score and preferably considerable assets. Unfortunately, many small and medium-sized businesses that need a loan don’t qualify.

Without operating capital, or access to revolving credit, keeping on top of cash flow can be a tricky juggling act. 

The solution:

  • Thankfully, there are alternative lenders that specialize in solutions for businesses that banks won’t finance. They often offer more flexible loan options, such as Asset Based Lending, which is based on a company’s assets, rather than its income or credit score, and Cash Flow Lending, which is a loan that is paid back quickly from incoming cash flow. 
  • If you have a trusted lender at a bank or lending company, discuss the alternative options with them. At Blacksail Capital Partners, we are happy to work alongside traditional lenders and banks to help you arrange the right financing options for your business.

 

To find out more about our cash flow solutions and which one might work best for you or your clients, please call us at 1-866-272-3704 or contact us here today

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