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The Top 5 Cash Flow Challenges Small Businesses Face

February 8, 2017

If there’s one thing that can doom a small business, it’s poor cash flow. One in four small businesses won’t make it out of their first year, primarily because of cash flow issues. More than half won’t make it five years or more. 

 

 

Here are the five most common cash flow challenges small business faces—and how they can overcome them:

 

1. Unorganized bookkeeping 

 

When you’re the owner of a small business, it’s so easy to put tasks like bookkeeping on the backburner because there are so many other important aspects of your business requiring your attention. But good bookkeeping must be a priority for any company. If you lose track of your income and expenses, you could be in for some significant trouble down the road. 

 

The best strategies for staying up to date on your books are to use an accounting system that makes tracking your cash flow easy or consult an accountant or part-time CFO to handle all financial matters. By keeping your books in good order, you will be able to better track how much money you owe or are owed—and exactly how much cash you have on hand to cover business expenses on a monthly and quarterly basis.

 

2. Inability to sustain profits 

 

While many small businesses operate at a loss for some time after launch, this obviously cannot go on forever. At some point, you will need to start turning a profit to avoid cash flow problems. 


The amount of time it will take for you to run out of cash depends on how good you’ve been at saving and how well you can manage your expenses. If you are seeing continual losses, you must determine the cause of the problem as soon as possible and figure out a legitimate long-term solution. 

 

3. Crushing weight of debt 

 

Certain debts can be almost impossible for small businesses to overcome. You must implement a credit control system when starting out so you always have a system to track down customers. You may also consider conducting credit checks on certain customers or ask for up-front payment before working with them. 

 

Additionally, you must be careful with taking out loans or using business credit cards. Do not borrow if you are at all unsure you will be able to pay back the loan.

 

4. Too much growth too quickly

 

You might think that rapid growth is a great problem to have. However, too much growth too quickly can cause significant cash flow problems that could quickly spiral out of control. You may be able to resolve these issues by taking out lines of credit or short-term loans. But the best solution is to plan for scalable growth that can lead to long-term success rather than short-term profit surges.

 

5. Inability to forecast cash flow 

 

Cash flow forecast is something you can accomplish with the help of a financial advisor. By putting together a forecast, you can predict which months will give you a surplus and which will provide a deficit. This will give you a better idea of the amount of cash you will need to stay in operation at certain times of the year. A lack of financial planning could lead to unexpected challenges throughout the year. 

 

Managing cash flow is a significant challenge for just about every business. Keep these tips in mind to ensure your company remains on the right track financially.

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