Starting a small business is exciting for entrepreneurs. No matter your niche, when your business idea turns into a reality, you want to do everything you can to succeed.

As wonderful as it is to see your products or services open for business, small business owners have to understand what makes a business work to stay in business long-term. Creating your product and serving customers is the fun part. Keeping your business running with the financial side of things is how you keep doing what you do.

Cash flow is one of the most critical parts of helping your business thrive. It can take up to two or three years to start seeing a profit with any small business, so what happens when you suffer a cash flow shortage until you see any income? Keep reading to learn five causes of cash flow problems and how you can resolve them!


What is Cash Flow?

Your business cash flow can fluctuate from month to month. Cash flow is the money that “flows” in and out of your business, from profits coming in, to expenses going out.

Without enough cash flowing into your business, you’ll struggle to see profits. If you let too much money flow out to cover expenses—without enough money coming in from sales and services—you’ll find yourself in debt that could lead to bankruptcy.

Cash flow is a balance of managing sales expectations versus projected expenses, like rent, employee salaries, and materials for your products. Whether you’re a new small business or you’re a few years into doing what you do, it’s critical to avoid cash flow mistakes.


1. Spending Too Much at the Beginning

They call new small businesses “startups” for a reason: you’re at the beginning of what you hope to be a long and successful business. It’s the start!

We know you want your business to be successful from the first day of business, but that doesn’t mean you need “all the things” at the very beginning. Spending too much on startup costs can put you in a cash flow hole that’s hard to overcome.

Keep your eye on the future, and keep the future where it should be: down the road. It might take a while to have the office space you really want. You might not be able to afford expensive furniture on the opening day of your business. Start with a few employees, then grow to a larger staff as your finances allow.

You’ll need startup capital to get going, but don’t overdo with expensive things you shouldn’t try to afford until your business is up and running for a while.

Remember: Apple computers began with two guys in a garage. Help stretch your cash flow by starting within your means. Let your product and services drive the income you need to grow.


2. Not Keeping Track of Expenses

Setting up an accounting system to track income and expenses early in your business can help you avoid operating without enough cash flow.

Ideally, business owners track expenses from the beginning of the business plan. From start-up capital to the very first sale, knowing when and how your money comes and goes helps you manage operating cash flow. Writing checks for invoices or paying cash for assets without tracking those expenses can put you in a negative cash flow situation at the end of the month.

Start with a simple spreadsheet system of income and outgoing payments until you can upgrade to a more robust accounting software system for accounts payable and receivable.


3. Being Too Nice With Past-Due Receivables

We know it can be tough to develop excellent customer relationships, especially as a small business serving a local community. You want to offer excellent services and flexible payment options to loyal customers. However, when you let past-due receivable invoices go too long beyond the due date, you put yourself in a cash flow disadvantage.

Letting customers delay payment for your services doesn’t help you or them. Employees can suffer, and your ability to provide services to new customers can depend on prompt payments from those who have an outstanding balance. Enforce firm due dates and penalties for late fees to keep positive cash flow.


4. Forgetting About Seasonality

Even the most successful businesses experience low cash flow during the off-season for their businesses. Manage your business cash flow by knowing when you’re off-season is and planning for it.

Before putting too much of your personal money into your business during a slow month (or several months) to stay afloat, consider acquiring working capital solutions. A business cash advance or business line of credit can help protect personal assets while keeping you in business until sales pick up again.


5. Mismanaging Inventory

Too much inventory won’t sell fast enough to cover the expense of purchasing and storing the inventory. However, not enough inventory to meet customer needs will drive business away.
Either way, your cash flow suffers. It can be a challenge to make accurate inventory predictions. Start conservatively and track inventory expenses and sales. You’ll soon find trends to help you anticipate the amount of stock you need to serve customers well and manage your cash flow.


Be Strategic to Avoid the Causes of Cash Flow Problems!

If you’re the best at what you do or the service you provide, but you struggle with the business side of your business, get strategic help! Avoid the causes of cash flow problems by partnering with financial industry veterans who work with entrepreneurs to help them achieve their dreams.

Strategic Capital understands the excitement and challenges of starting your small business. Don’t let cash flow keep you from doing what you do at the level you want to achieve. Learn how we can help you keep your business finances on track for your success!

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Strategic Capital | Headquartered in Kansas City, Strategic Capital has deployed over $220 Million to over 4,000 entrepreneurs to help them grow their businesses and achieve their dreams.