If your business struggles regularly with cash flow, there could be a number of reasons why. It may be internal processes that aren't being followed or aren't working. It may be external reasons such as the market or something else altogether. In order to make any changes, you first have to determine the root cause. Instead of scratching your head and getting more stressed...
Answer these questions to address the cash flow challenges of your business.
Business Cash Flow Challenges
Are your monthly expenses mission critical?
When growing your business, you may have invested in a number of things that aren't working for you anymore. If your cash flow needs addressing, now is the time to really drill down into your expenses. Look at where you're spending money and, if you're not getting a return on that investment, cancel it, cut it or shut it down. If your business grew too quickly, you may need to scale back on full-time employees. If your office is too big or you own too many software tools that you don't actually use, look at alternatives or how to cut back on things you don't need.
Is your pricing model working?
If your rates are too low, you may be attracting the wrong kind of customers or are unable to generate a profit. If your rates are too high, you could be scaring off your perfect clients. There is a delicate balance in this Goldilocks scenario. You may have to do some research to find that "just right" price that brings in the clients that love your work and that can be upsold later on. Look at what competitors are doing in your market. Take in perspective as well, such as your competitor's overhead. You may need to make some changes to find the pricing model that works for you.
Is your team motivated?
Do you have the right team members in the right roles? If your team members aren't on board with your business goals, you may need to figure out a way to motivate them to succeed. You may need to take a look at company culture, their use of time and if your job descriptions match with the actuality of your employees' responsibilities. When it's time to hire, those job descriptions and roles will define and hone how well your business runs. Document what your staff is doing to help make processes and procedures more efficient.
Are your clients sold on your brand?
Do they understand what you're about and are happy with your brand? If so, do they have an incentive to tell others about it? If you find that your cash flow problem is related to slow sales, listen to your current clientele to discover how they feel about you. There may be a breakdown between what you think you're selling and what they think you're selling. Once you and your clients are on the same page and telling the same story, your business has the potential to grow by word of mouth. Never forget to listen to your audience.
Are you collecting on what's owed to you?
If your customers or clients aren't paying in a way that you're expecting, you may run out of cash before you run out of bills to pay. Have you considered credit checks on clients? Are you certain that they can they pay? Your cash flow problems can be dramatically affected if your payment terms or credit policies are off. Again, take the time to dig deeper into your business and accounting processes to find out what's breaking down. If you find that you're writing off too much bad debt or not getting paid on time, remember that a professional B2B collections agency may be able to help and you'll owe nothing unless they collect on your behalf. Click the green button below to learn more.
After answering these questions, you will have a better idea of what's causing your cash flow problem. Get your business and accounting teams on board with solving this mystery. After all, they will benefit from your successful business too.