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Cash flow problems are a common problem for small businesses. Unfortunately, they’re also problems that can cause a lot of stress for business owners. When money isn’t coming in consistently, it can be difficult to make ends meet and keep the business running day to day.

If you’re dealing with cash flow problems currently, or if you want to get ahead of the game and prepare for potential issues later, here’s what you need to know. 

Causes of Cash Flow Problems

There are several common causes for a small business having limited cash flow. Those include outstanding invoices, overspending on expansion, and unexpected costs that come up throughout the year. We’ll look at each of those, below.

  • Outstanding Invoices – If money isn’t coming in from clients paying invoices, there’s no money for the company to pay bills and cover operating expenses. The longer invoices go unpaid, the more bills and interest will accumulate.
  • Overspending on Expansion – If you’re in a position to grow your business, it can help you increase revenue over time, but might be detrimental in the short term. It’s easy to get carried away with filling a new space with equipment and supplies or overbuying inventory. Without extra money coming in to cover those costs, going into debt is inevitable.
  • Unexpected Costs – No matter how much we plan, there will always be unexpected circumstances that can throw a wrench in things. In a small business, things like rent increases, unexpectedly high utility bills, or suddenly needing extra help around the holidays can drastically change a monthly budget.

What You Can Do if You Have Cash Flow Constraints

If your small business is facing cash flow problems, you’ll want to get it under control quickly so you can get back to running your company efficiently. These are some solutions to help improve your finances.

  • Collect on Unpaid Invoices. You might start by trying to collect on the outstanding invoices you’re owed. Send reminders with a firm deadline to pay. Be clear about your policy guidelines and the result of not paying in full by the deadline.
  • Apply for Small Business Loans. There are many types of loans available to small business owners. Short term loans are generally easier to be approved for and will pay out faster, making them a solid option for those in need of a quick boost in cash flow. Look into loans from the Small Business Association loans to cover costs. You’ll need to meet the following guidelines to qualify.
    • You’ve been in business for at least two years.
    • You have a personal credit score over 650.
    • Your business is profitable, according to previous tax returns.
  • Use Invoice Factoring. Accounts receivable financing allows businesses to sell outstanding invoices to a financial services company. The financing company will pay out a percentage of the invoice totals and will keep the balance when the invoices are paid. To qualify, you’ll need to meet these guidelines:
    • You’ve been in business for over 6 months.
    • You have a personal credit score over 530.
    • Your business has over $40K in monthly revenue.

How to Prevent Future Cash Flow Problems

The best way to avoid cash flow problems is to work hard to prevent them before they become a problem in the first place. Use the following tips to help your small business manage your cash flow wisely.

  • Maintain a Significant Savings. This seems like an obvious solution, and also one that’s easier said than done. Just like individuals are advised to have an emergency fund to cover a certain number of months in expenses, that should be a business goal as well. Building a safety net will give you a cushion when you need it.
  • Start Slow and Build Over Time. When your business is doing well, it will be tempting to jump into expanding quickly. However, growing a business is expensive. From buying new buildings to purchasing more inventory to hiring additional staff, costs will add up quickly.
  • Change Invoicing Policies. If you’ve been lax on the way you collect money from clients, this is the time to make some changes. Create policies about when you’ll bill, when invoices will be due, and how you’ll handle late payments. Follow up on unpaid invoices and stand by your policies.

Nearly every small business will encounter issues with cash flow at some point. How you choose to handle this bump in the road will determine whether you can continue to grow a successful company or go back to the drawing board. With tools like small business loans and invoice factoring, you can overcome the obstacles and continue to see your business flourish.

Jess Barnes

Jess has a passion for helping small business owners build their brands and connect with their customers. She writes about money, tech, and marketing for blogs and businesses.