3 cash management challenges businesses face and how to overcome them

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Following good cash management practices is essential for the survival of businesses of all sizes and structures. Managing the cash flow in and out of your business allows the owner to settle debts and pay expenses, collect income for himself and his shareholders, and reinvest in the growing business in terms of size. , services or territories.

Recognizing how closely related positive cash flow is to other business transactions or economic factors is the key to having stable finances that provide protection against future financial challenges.

Finding ways to reverse negative cash flow issues and point things in the right direction is essential not only for achieving financial stability, but also for removing what can often be a major obstacle to opportunities and growth in the future. long term.

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 pin down, even for otherwise successful businesses. Often, accounts payable and receivable will have a lag of several months. You might be closing business and making repeat B2B sales, but depending on your business model, the services you rendered have yet to be paid for. This is common when your business model allows payments over an extended period of time.

To bridge the gap between accounts receivable and late or slow customer payments, you may need to push your customers to pay on time. No, not necessarily with aggressive tactics, but with incentives. While it’s true that imposing late fees or interest on overdue balances will encourage many customers who don’t pay, you can also practice these positive ways to incentivize payments on time:

  • Build a friendly relationship with your customers and make them feel special with exclusive service offers or product discounts as a thank you for their timely payments.
  • Make on-time payment easier for customers with cloud-based AR solutions that send automated reminders and allow customers to pay online.
  • As a last resort, change your business model to require part of the payment up front or switch to a fee-based model in which you provide a bundle of services for the same cost each month (with a prepayment of 30 days).

It takes money to make money is not just a joke. A positive cash flow is only possible if you know when and where you are spending money. This brings us to the second challenge that businesses face when selling a physical product or when providing a service that requires personnel, equipment, or production: managing inventory and operating expenses.

2. Use business technology to streamline operations

When businesses are first launched, one of the biggest mistakes made is taking on unnecessary debt. Typically, this is a time when sales are minimal and every penny spent on overhead will reduce profits. But established small businesses will also go through phases where they will not immediately recognize the need to cut costs by whatever means necessary.

Economic downturns, changes in consumer behavior, and even severe weather events can quickly turn the tide for an otherwise healthy business. For these reasons, lean operations and close monitoring of overheads are essential.

For example, if your business sells products that you need to manufacture or purchase, maintaining a certain level of inventory is essential to meet customer demand. It’s that inventory, sitting on shelves and costing money to buy or create, that can drain the life of your otherwise profitable business.

This 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 costs and inventory costs.

Today, many repetitive administrative functions can be automated. This includes employee time tracking, customer invoicing, warehouse inventory and fulfillment, and shipping logistics. If you haven’t taken advantage of business automation solutions, you’re probably spending more money running an inefficiently running business.

Related: 5 Ways To Keep Cash Flow Pumping

3. Make smart data-driven decisions

The final topic of discussion regarding the challenges of cash management is the inability to see into the future, yet market researchers regularly publish business forecasts. If you really want to avoid spending too much money at a time when you need to exercise restraint, then you need to take the time to study your industry analysis reports and track your own KPIs or KPIs.

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

  • Brand or image awareness scores. Is your target demographic aware of your brand? Otherwise, a social media campaign or other marketing efforts should be continued.
  • Customer satisfaction (CSAT). Amazon has exploded into the ecommerce world due to its laser-focused obsession with customer satisfaction. If you own a business that is open to the public, follow a customer-centric business approach.
  • Customer acquisition cost (CAC). This metric is often subjective as many B2Bs would have to spend more on customer acquisition to make up for the low profits. Ultimately, this metric is used to determine whether sales and marketing campaigns are profitable.

You don’t have to be a market analyst to make smart trading decisions that generate profits. But it’s hard to overcome cash management challenges if you can’t see where your business is operating inefficiently. The best way to track your business performance is to track your financial progress on the database.

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

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