Cash is generated by the sale of goods and services. It is an inflow when cash comes in from the sales, and an outflow when it goes out to purchase something. As it is like fuel to keep the ball rolling, cash inflow must be greater than cash outflow. The surplus helps you meet loads of expenses, such as paying employees and business expenses, in addition to buying supplies. No business can survive without a good flow of cash. Unfortunately, the real scenario suggests that most of the businesses start to struggle with cash flow problems in the first year since their inception and end up grinding to a halt.

There is no denying that you have to increase your sales to generate profits, but you often neglect the fact that cash flow problems are not solely associated with sales volume. Further, do not forget to take into account the fact that sales keep fluctuating due to various uncontrollable factors such as competition threats and an unexpected shift in the predilection of your customers.

But to some extent, there is a possibility of establishing control over the flow of money, for instance, speeding up the collection and reducing your business expenses. Most businesses end up taking out loans in order to hit the ground running, but this might not be an effective solution until you get to the bottom of the problem. It will rather throw you into an abyss of debt. Even if you have to take out short term small business loans, it could be an expensive move.

Ways to manage cash flow and loans wisely

First off, you should know the reasons why your business is experiencing cash flow problems. Not until you know the real cause will you be able to have complete control over cash flow. The following are some causes that affect cash flow:

• Poor sales
• Too much money is blocked in inventory
• Late payments by customers
• Suppliers not allowing credit or a very short credit period
• Withdrawing too much money from your business
• Over-investments in plant and machinery, equipment, etc.
• A sudden rise in expenses

It is vital to come up with a solution to fix this problem because the impact of poor cash flow is serious. Here are the challenges that you will be facing due to the imbalance between cash inflow and outflow:

• You will be unable to pay your supplier on time
• It could be challenging to acquire raw material, which means halted production
• You might need to compromise on the quality by choosing cheaper alternatives.
• A lot of burden will be on your money if you try to take out a loan to meet the business expenses.
• You will have no money left to invest in your business, such as expansion.
• As an entrepreneur, you might have to cut back on your salary that you withdraw from business funds.
• You will probably act against your judgment in certain situations, such as offering discounts to increase sales when you actually do not want to.
• A struggle to pay business expenses will be a very common scenario.
• You will be forced to move the furniture around.

Ways to abate cash flow problems

Cash flow problems can be very dangerous for your business. Regardless of the cause of tight cash, the ultimate destination will be a shutdown. Therefore, you need to be quick to fix this problem. The sooner you uncover the cause of the problem, the better it is. Here are some proposed strategies to help you deal with cash flow problems:

• Find a cheaper supplier

You should research the market in order to find a cheaper supplier. Make sure that the supplier you choose delivers better quality, as compromised quality could affect your business sales. So, you will find yourself back on the drawing board.

Choosing an inexpensive supplier will reduce the cost of purchase, releasing some cash at hand, which you can utilise to meet other business expenses.

• Lease instead of purchase

Leasing might cost you additional money in relation to purchase, but it helps spread the cost over an extended period. You will know every month a fixed sum of money is to be paid, and therefore, you can easily plan your budget around these payments. As a result, you can preclude yourself from blocking the entire cost of purchase outright.

• Sell poor-performing assets

Not all assets are worth keeping. There is no point in keeping assets that do not lead to increased profitability. For instance, if you have equipment that is dysfunctional or poorly functioning, you should immediately sell such assets. It is a better idea to sell them than keep the money blocked in them.

• Apply for a loan

A loan might not be an ideal move if you are not certain about your repaying capacity. It should be considered a last resort. A loan could provide you with an instant injection of cash when you need money urgently. However, you must bear in mind that the whole amount will be paid back over time along with interest. If you are considering taking out no credit business loans with guaranteed approval, you will have to discharge the debt in one fell swoop.

• Offer discounts to customers

You should offer discounts to customers to increase sales. When prices are low, more people feel inclined to purchase. Those who use credit services offer discounts so they pay off invoices sooner rather than later.

• Invest in advertising

Increased advertising can really help your business improve sales. Sometimes, your sales are low on account of poor marketing and promotion. When sales ameliorate, more cash will come in.

The final word

Cash flow management is a must when it comes to running a business. Your business is likely to be at risk of shutting down if liquidity is not adequate. The aforementioned tips can truly help you have better control over your cash flow.