Struggling to pay your bills on time or even pay yourself in your business? You probably have some serious cash flow problems that could cause your business to fail. If you don't manage your cash well, you won't have money in your bank account to pay your bills. If that's the case for too long, you'll go out of business.
Cash flow is one of the things you have to get right when you’re a business owner, but it can be a big struggle if you don’t feel confident in your small business financial knowledge.
The weird part about cash flow problems is your business may actually still be profitable, despite the fact that you’re not able to pay bills on time. Cash flow isn’t the same as profits so these issues may not feel like a big deal at first.
But all it takes is one unexpected missed payment for your business to come to a crashing halt. Improving your cash flow comes down to understanding how cash flow works and steps you can take to fix it. It’s less complicated than you think!
There are 4 ways that you can fix cash flow problems to prevent a financial crisis from happening and get a handle on your small business finances.
Signs of Cash Flow Problems
Signs that you’re struggling with cash flow are that you’re paying fees because of late payments, struggle to cover expenses as they happen, or have to routinely negotiate to delay payments. Cash flow problems happen when there is more money going out of the business than coming in or the timing doesn’t match up.
The most common signs of cash flow problems include:
- You pay expenses late
- You routinely pay fees for missed or late payments
- You feel pressure to discount to increase sales
- You constantly have to chase clients to get paid
- You have no idea what’s going on with your business money
- Your business isn’t growing because you keep missing opportunities
- Your business is growing too quickly you can’t keep up
Figuring out how to solve money problems in your business can feel overwhelming, especially if you don’t know the basics of small business finance. Cash flow problems are usually a result of poor financial management—and that’s usually because you don’t know how to manage your small business finances!
While you may feel guilty or like a terrible business owner if you’re experiencing these problems, I can tell you that after years of working with small businesses to help them get a handle on their small business finances, these common cash flow problems happen to almost every business owner at some point.
You’re not alone if you have cash flow problems! You just need to get a plan together to fix your cash flow problems and put your business on the right track.
How to Solve Cash Flow Problems
There are 4 main ways of solving cash flow problems for small businesses. These are all the different levers you can pull. These strategies help manage your cash flow, either in crisis mode or over the long haul.
Let's go through some of the strategies I would use to manage a cash flow crisis, in the order I'd do them, basically easiest tactic to hardest. I also recommend setting up a cash flow projection so you can see what’s going to happen in the future with your money and anticipate problems before they happen.
1. Spend Less Cash
As a first step, you can audit your expenses to identify things you shouldn’t be spending money on. Pull up your income statement and start going line-by-line through your expenses and make sure each expense is something that you still absolutely need and is bringing value to your business.
If you want a really easy place to start - check out what software you're currently paying for and see what you can cut or pause. Get rid of anything that you’re not using and cancel subscriptions that you don’t need.
(Psst… don’t have an income statement? You can learn how to set up all the basic financial reports you need to run your business in my course Not Rocket Finance)
2. Collect Cash Faster
If you have overdue invoices from clients just sitting out there, work on collecting them. That cash is already due to you. All you need to do is get it in your bank account. So try to follow up with those clients and work on getting those outstanding invoices paid. Getting that money in your bank will definitely fix cash flow problems.
You can also set up new systems to collect money faster by using automated invoicing, accepting credit cards, or using other strategies to get paid faster by clients.
3. Spend Cash Slower
Talk to your vendors or service providers. See if you can work out payment plans, extend payment deadlines, or pause your services. The slower you pay your bills, the more time you buy yourself to come up with the cash you need to pay them. Most folks are willing to work with you if you take the initiative to ask them for help - they'd much rather get paid slower than not at all.
4. Get More Cash
You can do this by selling more - maybe you have a pretty decent sales pipeline and you can close a few more deals quickly. Discounts and sales can also help but these should only be used as temporary fixes to solve a cash crunch.
If you have bigger cash flow problems, you can do what’s called a cash infusion - find some cash from other sources besides sales. That might look like dipping into personal savings, if you have them, to float the business for a while, or this could also look like taking on a loan.
If someone just needs a little extra money to make things work, then getting a loan could help. But that’s not always the case for everyone. I definitely wouldn’t recommend getting a loan if you don’t see your money issues getting better anytime soon.
Fix Cash Flow With Not Rocket Finance
Once you’ve got a handle on fixing cash flow problems, the next step is to improve your cash flow so your money can work for your business and help you finally get unstuck. Cash flow is one of the money basics you have to get right to make your business work.
If the idea of learning basic small business finance and managing your money seems overwhelming, my small business finance course can help by decoding accountant-speak into a normal human. Knowing when and where money is flowing in your business isn’t as hard as it seems! It just comes down to gathering the right data in your business and understanding what it means.
The first step you can take today to start fixing cash flow problems is doing a small business financial health check. Before you know which of the above cash flow finance solutions are right for you, you’ll need to get a full picture of your business finances and what needs to change to get where you want to go with your business.
Want to learn more about your cash flow solutions and finally understand what’s going on with your money? Download my small business financial health check to get started!