Cash Flow Problems

Cash flow problems occur as your business experiences uncontrolled growth, the economy takes a downturn, a major client suddenly leaves, or something else unforeseen occurs.

Let’s examine some of the issues that cause cash flow problems and what you as business owner, leader, or manager can do about them.

Inter-related issues include:

• Incorrect forecasting of sales, inventory requirements, and expenses
• Inaccurate accounting or bookkeeping practices
• Wrong business plan
• Erroneous market research

One or more of the above can result in cash flow problems.  To address this, it is essential to have good data and use it appropriately to manage and profitably grow your business.

Other issues and some solutions*:

• Lacking cash reserves and/or too much debt – find investors or make a capital call/invest more money in your business or cut expenses.

• Decreasing sales – run a sale or promotion; but consider the effect on your margins.
• Lower profit margins – raise the sales price, but consider if your price will be competitive and whether you will lose sales and not move inventory fast enough.
• Outstanding receivables – offer cash discounts; take credit cards; factor your receivables.
• Too much inventory – slash the sales price and move it out with a promotion such as a BOGO

• Expensive borrowing – shop around for best rates from financial lenders, and consider a loan against your assets; other places to ‘borrow’ are your vendors, see if you can get your terms extended to free up cash.
• Uncontrolled business growth – that scales too rapidly can be a challenge; double and triple source vendors and partner on offering (hold inventory and ship directly) and financial terms.
• Seasonal changes in demand – limit volume and rise prices or utilize outside resources to meet higher demand.

All these issues can be fixed. The crux of the matter is do you want to tackle the problems? It takes a decisive, focused leader to handle, but your business will be healthier for your actions.

But whatever the corrective outcome is, action needs to be taken now, not later. You cannot spend profits, but you need to pay your debts.  You need to act with alacrity on cash flow problems to have a positive cash flow.

* Note there are downsides to every solution. You need to spend time and model the effect on your business and cash flow before you implement these tactics.

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