Identifying and Solving Cashflow Problems

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Cashflow is the amount of cash and cash equivalents that move through your business within a given timeframe. Cashflow provides a good indication of the health of your business and is essential for measuring its liquidity.

Many cashflow problems are temporary but even a profitable business can fail because of cashflow issues, particularly during times of rapid growth. Maintaining a positive cashflow is crucial to a company’s success and provides the foundation of your business’ stability, flexibility and purchasing power.

Cashflow problems

Cashflow problems become evident when businesses are unable to cover running costs, loan repayments, payroll expenses or to purchase inventory stock.

Identifying and matching cashflow problems and solutions is the first step a business owner must take to resolve cashflow problems. Prioritise expenses that help drive revenue and eliminate non-essential expenditures that tie up cash unnecessarily.

Solving cashflow problems

There are many ways to solve business cashflow problems but first, you need to identify the underlying cause then select the solution that will address it in both the short-term and the long-term. Short-term solutions may require financing, while long-term cashflow solutions are likely to be more structural.

Some cashflow problems can be solved by being smarter about invoicing and getting customers to pay quickly while others involve cutting business expenses. Each solution can improve overall cashflow management and provide the business with greater visibility of the cash they have on hand.

Reducing immediate expenses is a common approach to fixing a cashflow problem. Cost-cutting measures need to be well considered because getting this wrong by cutting necessities like inventory stock, marketing or labour can hurt a business’s ability to generate revenue.

Be savvy about where you are spending your money and cut out non-essential expenses to increase cashflow. Reduce overhead costs not directly related to selling your product or service such as warehouse spaces, where you may consider smaller or cheaper options.

Cut some service costs by doing it yourself and regularly monitor, audit and control overheads to ensure they don’t get out of hand. Shop around for cheaper phone and internet providers and cut unnecessary services such as indoor plant hire and maintenance.

Accounting and cashflow

Poor accounting leads to errors and it’s difficult to accurately keep track of income and expenses without a systematic accounting solution. Invest in a system that automates invoicing to help address cashflow problems.

There are numerous benefits of automating your invoicing process that include faster delivery to clients. Sending invoices online through accounting software will ensure everyone receives bills on time and this can speed up the payment process.

When invoicing you need to enforce strict payment policies with your clients and have penalties when payments are past due. As your client numbers grow, accounting systems are also beneficial in tracking payments.

A streamlined and hassle-free payment process for customers is also key to ensuring payments are received on time. Accept online payment that may offer greater convenience to your clients. With the option to pay online, they may be more willing to pay the invoice upon receipt. Accounting systems can automate all of these processes for you, including tracking collections, sending payment reminders and reporting on late payments.

Check out what accounting software Unleashed integrates with

Financing for cashflow problems

Fixing temporary cashflow problems is best done with short-term financing or lines of credit however many cashflow problems are also the result of costly debt payments.

Refinancing a business loan or consolidating debt into single monthly payments can save time and money. However, when weighing up financing decisions business owners should consider a long-term solution to their cashflow issues and examine how the business is doing to determine if a new debt payment will reduce cashflow problems in the long term.

Many payments are due monthly, so consider rescheduling payments to free up cash by negotiating a different due date with suppliers or trade partners. Many vendors will be happy to change their payment date if they feel confident in your business’s ability to pay on time.

Inventory control for better cashflow

Not having a robust inventory control system can lead to excess inventory stock, which is a leading cause of cashflow problems. Inventory overstocking ties up working capital and goods sitting unsold on the shelves are not generating any revenue.

Implement online inventory management to improve inventory control. Remember the Pareto 80/20 principle that dictates 80% of sales should be generated from 20% of your inventory stock? Online inventory management will help to determine your best-selling products and automated reordering will ensure you always have stock on hand without the need to overstock.

Most importantly, online inventory management helps you to easily track inventory levels in real-time providing visibility on all individual stock items and stock levels. The analytic tools within online inventory management also provide insights into metrics such as inventory stock movements and sales trends, helping you to create more detailed reports, better plan and manage cashflow in the future.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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