It’s not uncommon for businesses to have financial difficulties nowadays. The fact of the matter is that managing business finances can be a really tough challenge, especially for new businesses on the market. The most common financial issue many companies face is related to their cash flow. Cash is the most liquid and thus the most important business asset. The main reason is that cash allows you to pay for investments and immediate expenses straight away.
Every other asset needs to be liquidized first before you can utilize it to make payments or pay for expenses. If a company is suffering from negative cash flow, it can easily go bankrupt even though it’s generating revenue. That said, struggling with cash flow is nothing new and you don’t have to worry too much about it because even that issue can be resolved. With that in mind, here are a few tips for businesses struggling with cash flow.
Reduce your overhead costs
Overhead expenses are necessary costs for every business. However, that doesn’t mean you must overspend on these expenses at all. Overhead costs represent every expense a company can have that doesn’t yield any ROI (Return on Investment) as the operational costs do.
As an example, overhead expenses include bills, utility, taxes, rent, advertisement, travel expenses and so on. Every bit you can save by reducing these costs can help you improve your cash flow. It’s important to remember that a negative cash flow is when your company spends more money than it earns. That’s why every expense should be reduced to a minimum if possible.
Get paid on time
As mentioned before, having a bad cash flow means you can easily go bankrupt even though your company is generating good revenue. This happens when you don’t get paid on time. A perfect example is invoice payments. Many companies allow their customers or clients to pay via invoices. However, invoices can be due anywhere between 30 and 120 days, which means that even though you made a sale, it will be some time before you actually get paid.
This will hurt your cash flow in more ways than one. Still, you can get paid on time without pushing customers to pay their dues. As a matter of fact, you can consider invoice discounting. The way it works is that a factoring company pays your invoices before they’re due and collects the payments from your customers afterward. That way, you can maintain a good cash flow for a small fee and still provide convenience to your customers.
Pay your bills on time
Bills are one of the overhead expenses that are necessary to pay. Still, many companies are oftentimes late with bill payments. This activity results in additional costs in the form of late fees and high interest rates, as well as a bad credit score.
Those extra costs just contribute more to your negative cash flow. You have to pay the bills either way if you want to stay in business so you might as well pay them on time and save your company the extra costs. You can schedule bill payments or set reminders so you don’t miss out on any payments again.
Consolidate your debt
Every business is in some form of debt. For instance, you might have taken a bank loan to buy new equipment, opened a new debit card for your company and so on. In any event, chances are that you have a couple of smaller debts you have to manage every month. However, this practice can hurt your company’s cash flow. The more debts you have, the more interest rates and additional fees you have to pay for.
A proper solution would be to consolidate your debts. What it means is that you take a larger loan with more favorable payoff conditions to cover your other smaller debts. That way, you have only a single debt to worry about instead of many smaller ones. Moreover, if you pay your dues on time, you won’t have to worry about interest rates or excess fees at all. Struggling with cash flow is not uncommon for companies but it doesn’t mean your business is ruined either. The key is in properly managing both your incomes and expenses, as well as being smart about it. That way, even if you hit a rough patch, you’ll still manage to maintain a good cash flow.