3 Cash-Management Challenges Businesses Face and How to Overcome Them

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Following good cash- practices is essential for businesses of all sizes and structures to survive. Managing the cash flowing into and out of your enables the owner to settle debts and pay expenses, recoup income for themselves and shareholders, and reinvest in the business expanding in size, services or territories.

Recognizing how closely positive cash flow is tied to other business operations or economic factors is the key to having stable finances that provide a buffer against future financial challenges. 

Finding ways to reverse negative cash-flow issues and point things in the right direction is essential not only to achieve financial stability, but also to eliminate what can often be a major obstacle to opportunity and long-term growth.

Related: 10 Expert Tips on Managing Cash Flow as a New Business

Here are three ways to overcome negative cash flow. 

1. It takes money to make money

Cash flow can be difficult to nail down, even for otherwise successful ventures. Often, accounts payable and will have a months-long lag. You may be closing deals and experiencing repeat B2B sales, but depending on your business model, the services you’ve rendered have yet to be paid for. This is common when your business model allows for payments over an extended time period.

To overcome the accounts-receivable gap that occurs with late or slow customer payments, you may have to push your customers into paying on time. No, not necessarily with aggressive tactics, but with incentives. While it is true that charging late fees or interest on past due balances will encourage many non-paying clients, you can also practice these positive ways to incentivize timely payments:

  • Establish a friendly relationship with your customers and make them feel special with exclusive service offers or product discounts in appreciation for their timely payments.
  • Make it easy for clients to pay on time with cloud-based AR solutions that send automated reminders and allow clients to pay online.
  • As a last-ditch solution, tweak your business model to demand a portion of payment upfront or switch to a retainer-based model in which you provide a set of services for the same cost every month (with a 30-day prepayment).

It takes money to make money is not a simple quip to throw around. A positive cash flow is only possible when you know when and where you are spending money. That brings us to the second challenge that corporations face when they sell a physical product or when they provide a service that demands a staff, equipment or production: managing and operating expenses.

2. Use business technology to streamline operations

When businesses are first launched, one of the biggest mistakes made is starting out with unnecessary debt. Typically, this is a time when sales are minimal, and every penny spent on overhead costs will cut into profits. But established small businesses will also go through phases when they don’t immediately recognize the need to cut costs by any means necessary.

Economic downturns, shifting consumer behaviors and even serious weather events can quickly turn the tide for an otherwise healthy business. For these reasons, lean operations and keeping a close eye on overhead costs are critical.

For example, if your company sells products that you must build or buy, keeping a certain level of inventory to meet customer demand is critical. It is this inventory, sitting on shelves and costing money to purchase or create, that can suck the life out of your otherwise profitable business.

Here is where modern technology can help. A small investment in inventory-management solutions that help manufacturers follow just-in-time (JIT) practices can reduce both production and inventory costs.

Today, many of the repetitive administrative functions can be automated. This includes employee time-tracking, client invoicing, warehouse inventory and fulfillment, and shipping logistics. If you haven’t taken advantage of business-automation solutions, then you are likely spending more money on running a business that is operating ineffectively.

Related: 5 Ways to Keep Cash Flow Pumping

3. Make smart decisions based on data

The final topic of discussion regarding cash-management challenges is the inability to see into the future, yet market researchers publish business forecasts on a regular basis. If you really want to avoid spending too much money at a time when you should show restraint, then you must take the time to study your market-sector analysis reports and track your own key performance indicators or KPIs.

Too many business owners have an emotional attachment to their operations and their customers. But most cash-management challenges can be avoided when you track the following KPIs:

  • Brand or image-awareness scores. Is your targeted demographic aware of your brand? If not, a social-media campaign or other marketing efforts should be pursued.
  • (CSAT). Amazon skyrocketed in the ecommerce world because of its laser-focused obsession with customer satisfaction. If you own a public-facing business, then follow a customer-centric business approach.
  • Customer acquisition cost (CAC). This metric is often subjective because many B2Bs should spend more on customer acquisition to offset low profits. In the end, this metric is used to determine if sales and marketing campaigns are cost-effective.

You don’t have to be a market analyst to make smart business decisions that return a profit. But it’s hard to overcome cash-management challenges if you can’t see where your business is performing ineffectively. The best way to track your company’s performance is to chart your financial progress based on data. 

Related: Never Worry About Cash Flow Again by Using These 5 Strategies

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