Subscribe to Blog ContentCash flow problems often don't last long, but you want to understand how they happen so you can fix it right away or prevent your business from running into cash flow problems. Low or no working capital is one of the biggest reasons that businesses fail. Remember your business could be doing well and even making a profit, yet it can run out of cash. It's all about timing and management.
Simply put: Make sure you have more cash flow into the business than going out to pay expenses and make payroll.
How to Raise Working Capital
When you're in this situation, it's vital to raise working capital. If banks aren't working for you, try working with a private lender to explore different loan options or invoice factoring (also known as debt factoring and accounts receivables financing). Another quick way to get cash flow is to sell your building, plant, machines, inventory or equipment or find a cheaper lease.
Pay your expenses on your credit card. That buys you time than if you pay with cash or check. Talk to your vendors and suppliers about a payment plan or a discount if you pay X amount now. These solutions are band-aids, not permanent fixes.
Manage Cash Flow
To ensure you don't run into a temporary cash flow problem again, get a handle on your cash in and cash out process and timing. Here are 8 tips for managing your cash flow. If you still struggle with creating a cash flow statement or forecast, ask your bookkeeper, CPA or other finance pro for help. Cash flow projection predicts how your cash will flow in and out in the future. It also looks at potential expenses so you can prepare to cover those. These can help you see if there's a spot where you're low on cash and change things around so it won't happen.
Don't have one? Hire one—not as a permanent part of your team. Rather, outsource the job and the person will be on hand when you need advice. So you don't have to pay a full-time salary or benefits.
You may still need to investigate loans and financing options—but when you plan ahead, it'll assure you keep things flowing in and out without too much on the "out" part while keeping you proactive and growing your business.
The alternative to not planning and predicting cash flow? Going out of business.
I agree, its important to implement a inventory software solution. Not only does it save you time, but it also saves you money in the end.
Great points - one of the biggest drains on cash flow is excess inventory. One of the best ways to improve this is to move from a perspective of minimizing to costs to a more balanced perspective of maximizing economic profit or economic value added. Todays ERP packagages are using a cost based method developed in 1913 that no longer meets the world of business today. It is much better to use EVA weigh decisions with investing in inventory. It is amazing how much cash can be released by changing this simple perspective or paradigm.
Post new comment