December 7, 2018 Last updated December 6th, 2018 1,811 Reads share

How to Deal With Cash Flow Trouble as a New Business Owner

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Cash flow is a factor that most new entrepreneurs ignore but which is vital to the success of any business

A positive cash flow can lead to a profitable business with high chances of survival and growth. On the other hand, negative cash flow does just the opposite; it hinders business success, slowly sucking the air out of its sails until the business collapses.

Cash flow is such a headache for new entrepreneurs. In 2017, a WePay survey revealed that 41 percent of business owners reported having cash flow problems.

Regardless of the extent of your cash flow problem, there is always a solution. Here are six useful strategies you can use to fix your cash flow problems and set yourself up for success.

1. Cut operating costs to increase cash inflow

Reducing your expenditure is by far the easiest and most effective way to level your books and increase cash flow.

Maintaining a positive cash flow in any business requires more than just bringing in more money. Think about it this way, regardless of how much money you are bringing in, you will still find it very difficult to maintain a positive cash flow if you are operating beyond your means.

As such, it is essential that you minimize the funds flowing out of your business in the form of recurrent bills, debt payments, and operating expenses.

Here are three quick ways to cut back on expenses;

  1. Get rid of all unnecessary expenses
  2. Save on supplies by buying in bulk, take advantage of discounts or switch to cheaper suppliers
  3. Buy quality business tools and equipment to reduce repair costs

2. Minimize your current stock

Most businesses have some form of stock in one form or another.

When buying this stocks or supplies, smart business owners buy in bulk to take advantage of cheaper wholesale prices and discounts.

However, when your finances are out of order, you could breathe some life into your company’s cash flow by reducing the amount of cash tied up in raw materials or goods for resale.

By reducing your stock and converting it into cash, you give your business the funds it needs to attain a positive cash flow.

Once your finances are in back in order, you can survive by ordering less stock from suppliers and reducing the number of products you offer your customers. Cut back on products that are not selling or that give you poor returns and invest that money into more profitable merchandise.

3. Cut back or delay expansion plans

Business growth relies heavily on strategic business expansion.

However, when you are experiencing a negative cash flow that could potentially kill your enterprise, you should avoid expanding your business. Instead, focus more on leveling your cash flow first before considering any major expansions.

If you are still convinced that expanding is the better option, you should understand that business expansion is expensive, it takes time and rarely gives any positive returns on investment immediately. It takes months for expansion to become profitable, and with a worsening cash flow problem, months may be too late for your business.

Instead of looking forward to the benefits that expansion promises, why not solve your negative cash flow first so that expansion doesn’t end up running you into debt or even worse, leading you into bankruptcy.

You can always take up expansion later when you are more financially stable.

4. Maximize your profits by running a flash sale

If your business is running smoothly but your finances have suddenly hit a rough patch, what you need is a quick influx of cash into your business and you will recover.

The quickest way to add some bucks into your accounts is to run a flash sale. A flash sale is the sale of products or services at reduced prices that lasts for only a short while.

While you will earn less per sale during a flash sale, the numbers will balance out as the quantity of as sales increases.

In 2017, Shopify reported that sellers with active discount codes were eight times more likely to make a sale than those with no discounts. A well-executed flash sale will multiply your revenue and give you enough funds to solve your cash flow problems.

5. Take a short-term business loan

If your cash flow problems are difficult or impossible to solve without external funding, a short-term loan is the next best solution.

Short-term business loans are relatively easy to get approved for and can be given in a very short period – sometimes within a day. Due to their quick approval and disbursement, they can give you a quick infusion of cash to solve your financial troubles.

Short-term loans, such as title loans, offer the best financial solutions for covering temporary deficiencies of funds in your business. You can use them to boost startup costs, for short-term operational costs or for emergency repairs and maintenance.

6. Raise your prices to maximize cash inflow

As a last result, you can salvage your business from falling deeper into a financial crisis by drawing more bucks from your customers.

While most business owners will try to increase ROI per customer by introducing more offerings, this is almost impossible to pull off when you are dealing with a cash flow problem. A better alternative is to raise your prices and earn more from each sale.

This strategy is not for everyone. When implemented correctly, raising your prices could give you some extra cash with very little investment on your side. However, any mistake could push your customers away and leave your business struggling to survive.

To increase your chances of success with this strategy, you must first ensure that you have no problem making sales. If you are making a healthy number of sales, it means that you have a valuable product that customers would not mind spending more on.

If you are struggling to make enough sales, raising your prices may scare away the few customers you have left. In such a case, implementing another strategy such as running a flash sale is the best option for you.

Don’t let negative cash flow become a habit

Most businesses run into negative cash flow problems at different points of their lifetime. And while a temporary cash flow problem is not a big deal, it could ruin your business if left unchecked for long.

As such, you should never be idle. While these solutions can prove very efficient in solving most cash flow troubles, they will not do you much good if you repeat the same mistakes that landed you into trouble.

Use cash flow forecasting to predict the optimal path that your business should take, then use active cash flow monitoring to ensure that you are not deviating too far from this path.

It a very easy task that will help you maintain a positive cash flow and facilitate the growth and profitability of your business.

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Hassan Mansoor

Hassan Mansoor

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