Countless small businesses and startups are prone to facing several challenges along the way; however, cash flow problems are likely among the most common. Realistically cash flow problems may be so common simply because there are numerous impacting factors from how you are managing your business expenses to the type of payment solutions you have settled on. Cash flow is how funds enter and exit your business, and it is usually measured in set periods of time, such as monthly or annually. To ensure poor cash flow does not sink your business, you should pay attention to the following factors.Â
Payment Solutions
The payment solution that you opt for is about so much more than getting paid, especially when considering that businesses that are not PCI compliant risk notable damage to their brand. Unfortunately, not many startups are fully aware of PCI compliant payment solutions, which is why it is crucial to fully understand what is PCI compliance, prior to settling on a suitable payment solution for your business. Even though compliance is not regulated by law, your payment solution should essentially ensure convenience for your customers while also being able to reassure them of your authenticity.
Faulty Credit Terms
While how your business accepts payments is fundamental, the credit terms set for your customers should be synced with your business credit terms with suppliers. This means that customer credit terms of 30 days and supplier credit terms of 14 days would inevitably lead to disaster for your cash flow. The terms you set should ultimately suit your business and its ability to function as this issue will result in debt concerns and the inability to pay suppliers. A fantastic solution would be to encourage customers to pay their accounts early by including a discounted fee for early payment. It would also be wise to opt for payment solutions that make it as simple as possible for your customers to pay their accounts considering this aspect would directly affect their decision to pay early.
Inadequate Profits
It may seem quite evident that lack of profits would lead to cash flow issues, although, for businesses that are focused on beating competitors with low prices, lack of gain becomes an immediate concern. You should be selling your goods or services at a realistic profit that would cover supplier costs and any production costs. Cash flow forecasting is a practice that can aid your ability to determine whether or not your selling prices and profits would suffice. This practice will also allow you to determine which months you could expect poor cash flow and which months you may be able to anticipate a surplus. As several aspects should be considered when predicting cash flow, such as consumer behaviors, you should consider each element to access the most accurate forecast.
Addressing Problems As Soon As Possible
Naturally, the effort of identifying and addressing cash flow problems as soon as possible aids the process of getting your business back on track. Neglecting to fix fundamental cash flow problems for too long is among the most notable reason businesses shut their doors within the first five years.
