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One of the biggest reasons small businesses fail is due to cash flow problems. Many small businesses are only one late invoice away from a cash flow crisis, which means they face a serious risk of losing everything they’ve worked so hard to build.  

Time and again, study after study shows that when a business fails, it’s due to poor cash flow. 82% of businesses that failed cited cash flow problems as a factor in their failure. That’s a pretty sobering number. 

Cash flow has the biggest impact out of almost anything else you can imagine. Fortunately, certain factors lead to cash flow problems. Knowing these factors lets you better protect your business and implement more effective cash flow management strategies. 

6 Cash flow problems and their solutions 

No emergency funds 

No matter what type of business you run, there will be times when business booms. There will also be times when business stutters. When cash flows in, set some of the profit aside in an emergency fund. 

You never know what life might throw your way, so having enough funds to cover a catastrophe or unexpected challenge can make or break your ability to run your business. If you’re one late invoice from failing — imagine the relief of having an emergency fund during to respond to unexpected cash flow problems. 

Ideally, you should start your business with enough funds in place to cover emergencies, unexpected expenses, and cash flow issues. However, if you’re already in business, you might not have planned for such a fund. In this case, throw every bit of money you can spare into an emergency fund until you have enough to cover any major issue. 

Outstanding accounts receivable 

Late payments from invoices hurt small businesses by squeezing their liquid cash flow. When money owed isn’t received on time, it ties up funds needed for daily operations and growth, making it hard to meet immediate obligations like paying suppliers and employees. Businesses also waste time chasing overdue payments, diverting resources from crucial activities. 

Forwardly solves the late payment issue with a simple yet modern solution. With instant payments, businesses can receive payments in just 22 seconds, with a low cost of just 1% (minimum $1, maximum $10) per transaction. This eliminates the high cost and waits of 3 to 10 business days with traditional methods. Not just this, Forwardly’s automated payments feature makes the process hassle-free, freeing businesses from constant monitoring. This not only speeds up cash flow but also lets business owners focus on growing their business and engaging with customers. Forwardly provides an effective solution to the financial strain caused by late payments. 

Unsynced credit terms 

When setting up the invoice payment terms for your customers, you also need to look at the credit terms from your suppliers. If your suppliers offer a net 30 and you offer your customers a net 60, you’ll likely encounter cash flow issues. Net-days can translate to nearly any number. Some suppliers only offer 15 days (net 15), for example. Seek suppliers with the most generous net-days terms you can find. 

Take the time to study your books and discover what terms each of your suppliers offer. Your terms to your customers should be less than the shortest payment time to your suppliers. This gives you some room in case your customer pays a bit late. The last thing you want is to owe your supplier well before your customer owes you. 

Inaccurate forecasting   

Having enough cash is crucial for businesses, especially for vendor payments. Cash flow forecasts help answer a common question: Will we have enough money in the next six months as we grow? These forecasts track all expenses and income, giving a heads-up on expected funds for better expense planning.  

For a free solution, check out Forwardly, which includes rolling 12-month cash flow forecasts for no monthly subscription. Forwardly reduces stress for SMBs in managing cash flow by giving an early heads up when trouble is on the horizon. Without cash flow forecasts, navigating business finances is like steering a ship in the dark—more likely to run into problems. It’s time to take action and make a positive change for your small business. 

Not monitoring expenses 

Over time, expenses creep in that you might not have budgeted for. Perhaps a supplier raises their prices, and you’re too busy to seek a new supplier. Perhaps your monthly rent goes up, and it’s too much work to move to a new location. 

Whatever the cause of these creeping costs, if you don’t monitor them closely, the resulting cash flow problems can potentially overtake your business. 

At least once per quarter, take the time to sit down and review your costs. Look at wages, supplier costs, rent, and even things such as utilities. Where can you cut down on the costs or implement policies to reduce expenses? 

Not planning for seasonal fluctuations 

Every business on the planet has slow seasons. For retail establishments, this is traditionally January and February. For other industries, it might be the winter months the summer months, or anything in between. Not planning for these fluctuations leaves you with unneeded inventory and a lack of funding. 

Don’t wait for the fluctuations to cause cash flow problems; always plan. If you know that winter is slow for your business, then cut back on inventory the month or two before the slow season hits. Plan promotions to up your income during these months or use the time to travel to trade shows and drum up new business and clients. 

Become future-ready 

Make your business ready for anything that comes with Forwardly. Proactively address cash flow challenges by understanding their causes and planning. Almost every business faces these issues, but with careful pre-planning and organization, your business can operate smoother than ever. 

Overcoming cash flow problems not only prevents growth obstacles but also gives Forwardly a competitive edge. Well-thought-out plans are essential for long-term success. Take immediate action to address cash flow issues and streamline your accounts receivable and payable processes. Don’t hesitate to be proactive. Simplify your approach and be ready for success. Take charge of your cash flow with Forwardly today! 

This article is informational only and does not replace the expertise that comes from working with an accountant, bookkeeper, or financial professional. 

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