A bit of planning and foresight can help your small business avoid crippling cash flow problems. No matter what challenges you come up against.
Few small businesses get going, much less succeed, without hard work, tenacity and tolerance for risk. Having a good idea for delivering a product or service better than the competition doesn’t hurt, either. None of those attributes matter much, however, if your business is chronically low on cash.
This is the reality for many small businesses, and it can be their undoing. Nearly a third of small businesses fail because they run out of money, according to an analysis by business intelligence company CB Insights.
Of course, there is no shortage of ways businesses can end up in dire financial straits. Sometimes the economy hits a downturn and projected sales dry up. Or there’s a problem with a key supplier that spoils what would have been a big payday.
Even so, forward-thinking entrepreneurs know there are ways to put their business on the best footing to ride out the inevitable swings.
All too often, the source of small business cash flow problems are within your control. Have you set up your accounts payable and accounts receivable to maximize your cash flow? Are you able to accurately forecast your cash needs six months or a year from now?
And are you certain you’re doing all you can to ensure your company can withstand a big, unexpected and unavoidable expense?
Here are three common reasons small businesses run out of cash — and what you can do to avoid a similar fate.
Badly Timed Invoicing
One of the first places to eliminate potential cash flow issues is in your business’s own back-office operations. This is where poor planning in how you set up your billing and other accounting practices can have costly ripple effects months or even years down the road.
One big red flag is when businesses fail to coordinate their accounts payable and accounts receivable. This comes down to sending out invoices to your customers on a deliberate schedule that takes into account when you will need to meet your most pressing cash needs, like covering payroll, paying your bills, or other key expenses.
This isn’t likely to work well if you’re still sending out invoices by mail. Even sending email invoices can be hit-or-miss, if you opt to do it yourself or rely on an employee. There’s always going to be some distraction that ends up delaying when those invoices go out. And why risk that, when there’s technology you can use to ensure it gets done on time, every time?
FINSYNC allows users to automate bill payments and invoicing, along with payroll processing and other back-office tasks. Sending out invoices automatically increases the likelihood that you’ll be paid sooner. This reduces the possibility that you’ll come up short on funds to cover your business expenses.
Lack of Foresight
A big part of managing cash flow is having good insight into what it will take to financially navigate through the predictable ups and downs of your business cycle.
For example, retailers need to ensure they have the funding to place orders for goods in the spring so that they have fully stocked shelves in time for back-to-school sales in the fall. Also so they can hire more workers for the holiday shopping season in November and December.
Your business has its own seasonal patterns when demand — and the potential for more revenue — is perhaps strongest. And, conversely, when sales are likely to slow. By syncing up all your financial accounts, FINSYNC can help you better manage how you plan for these cash flow swings.
FINSYNC’s accounting and cash flow management platform provides you with an accurate, comprehensive view of your company’s finances, making it easy to get quick answers on questions such as which bills are coming up, the status of accounts receivable, and where you stand on covering payroll.
This data is key to forecasting your cash flow needs. That way you can take steps to avoid any funding problems well in advance. Features like built-in time and expense monitoring and employee time tracking can also make it easier for you to manage your cash flow.
Things Outside Your Control
Sometimes things happen that are well beyond your control in business. All you can do is hope that you’ve done enough to ride out the turbulence. This is what many businesses had to do more than a decade ago, when a booming economy, housing and stock market skidded, triggering the biggest economic slump since the Great Depression.
Many businesses didn’t make it, especially as the credit markets dried up. Those that survived learned that certain strategies can help. For example, building up cash reserves to cushion against times when sales slow. Lining up capital before you need it can be key. Especially during a severe economic downturn that could lead to banks pulling back on lending.
Even if you’ve been turned down in the past for a business loan from a traditional bank. There are more options than ever for small businesses to obtain the financing they need.
The pullback in traditional lending after the 2008 financial crisis helped give rise to online lending companies that use technology to speed up the loan application process and broaden how they gauge a borrower’s creditworthiness, including looking beyond a business’ collateral. That’s led alternative lenders to become a key source of financing for small businesses in recent years.
FINSYNC’s Lending Network matches applications from small businesses with a variety of lenders in a matter of minutes, making it easy for you to choose who has the best option for your business.
Finding other ways to extend your cash flow is also a good strategy when funding needs increase suddenly. FINSYNC Pay will allow you to use your credit cards to cover costs that you would normally only be able to pay with cash, such as your rent, freeing up your cash for other needs.
While there are many trajectories for growth, successful business owners know investing in sound financial management will help get them there faster. No matter the challenges along the way.
Try FINSYNC for free to see how the platform can help you easily improve your cash flow management and avoid those dreaded dips into the red.