Managing Cash Flow Problems in 2023: A Guide for Entrepreneurs

Navigating Cash Flow Challenges as an Entrepreneur in 2023

Cash flow problems can cause all sorts of problems for small and medium-sized businesses, from not being able to pay their taxes to go out of business. Here are a few options for SMB owners who are having trouble with cash flow.

Cash flow problems are a common problem for entrepreneurs and small to medium-sized businesses (SMBs). This is clearest when things are uncertain and changing quickly. For example, the Russo-Ukrainian War has been especially hard on small and medium-sized businesses because of rising fuel costs, government sanctions, and problems with the global supply chain.

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There are many things that can cause cash flow problems, but the end result is always the same: not enough cash on hand to cover daily costs like paying suppliers and making payroll. If a business doesn’t meet these basic operational needs, it won’t be able to make money or keep making money, which often has its own effects.

But it’s important to know that problems with cash flow aren’t inevitable. When they do happen, they are not always impossible to get past. So, here are a few ideas for small business owners who are having trouble with cash flow: (or even avoiding them entirely).

Make your billing and billing process easier

A YouGov survey found that 55% of U.S. small and medium-sized businesses (SMBs) are waiting for money that is stuck in late invoices. And the small and medium-sized businesses that are still waiting have been waiting for a long time. On average, 25% of U.S. SMBs are paid more than 20 days late.

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One of the best ways to avoid cash flow problems is to make it easy and worth your clients’ time to pay you quickly. There’s no one-size-fits-all solution here; each business has to find what works best for them.

One of the best ways is to make it easier for clients and customers to pay on time by changing your payment system. This could mean putting one-click payment links on invoices or letting people choose other ways to pay (e.g., direct debits, installment payments, or recurring payments).

Another good idea is to change your payment terms so that early payments are rewarded, and late payments are punished. For example, you could offer a 2% discount on invoices paid within five days and charge 2% interest for each month an invoice is paid late.

This two-pronged approach helps encourage clients and customers to pay on time, which is important for a healthy cash flow.

Make a forecast of your cash flow

A cash flow forecast is a document (typically for an entire year) that predicts how much money will be brought in and how much money will be expended each month. It’s an important tool for any small or medium-sized business (SMB) because it lets you spot potential cash flow problems before they become big problems, find the best time to make big purchases or investments, and figure out how changes in income or expenses will affect the business.

The preparation of a cash flow forecast is not overly difficult. You may get started by utilizing a specialist accounting application that already comes equipped with tools and reports for cash flow management and forecasting. Because of this, the procedure will now be automatic, which will make it much simpler for firms to monitor their cash flow.

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You can also make a forecast by hand in Excel or Google Sheets. All you need is a clear picture of your expected and actual income, expenses, assets, and liabilities.

Set aside some money

When it comes to personal finances, most people know what an emergency fund is. The same is true for building up a cash reserve for your business. By putting money aside in a separate account that pays interest, SMBs can make sure they always have the money they need to cover costs and avoid having to shut down the business.

How big your emergency fund should be will depend on things like the type of business you run and where it is. As a general rule, you should save enough money to cover your basic operating costs for 2–6 months.

It can be hard to save up money, but it’s important to keep trying. It’s one of the best ways to keep your business from going out of business or getting into other serious trouble because of how you handle your cash flow.

Talk to your creditors.

The most recent data shows that 73% of SMBs in the U.S. owe money to banks, suppliers, or other creditors.

When there is a decrease in the amount of cash coming in, it may be time to renegotiate the terms of existing contracts. This can be challenging because small and medium-sized businesses (SMBs) typically do not have the same level of negotiation strength as larger businesses. Still, some suppliers are happy to make a deal, especially if you are honest about your situation and are willing to be flexible.

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You might be able to finish paying off your debt by making payments that are less substantial but more frequently made, by negotiating for lower interest rates, by trading goods and services, or by discussing how to pay for large orders.

Similarly to this, if you receive a bill and are unable to pay it in full, you may be able to come to an agreement with your creditor. You could propose, for instance, to pay a portion of the total upfront and then make ongoing payments until the obligation is settled. Talking and being honest is vital at all times.

Cash flow management is a key part of running a small or medium-sized business, and it pays to be proactive. By taking the steps above, you can get a handle on your cash flow and avoid strike-offs. As with any important business process, it’s also a good idea to get professional advice or use specialized tools to make the process go more smoothly. This can make it easier to keep track of how much money is coming in and going out of your business. Additionally, it might assist you in identifying possible issues before they escalate.

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