What causes short-term cash flow issues

Most small-medium enterprise do not have stable income all the time. There are times when sales are excellent and times that you barely scrape by. There are also unexpected expenses and delayed payments from your customers that may threaten the health of your business.

Getting to the cause of your business cash flow issues

Before you can even enact a solid strategy for fixing your cash flow, you first have to understand what is happening at a foundational stage. In other terms, what is causing the problem? While there could be a number of reasons, almost every issue with cash flow can be categorized into one of three things:

Sales Problems

This is commonly the primary cause of cash flow issues, sales problems. When your business is not selling enough, then it follows that you are going to struggle with the flow of cash. The key is to knowing why you are not selling enough.

These issues are generally related to one of three problems: First, the sales price is too high. Second, the market is not receptive to the product. Or third, you are doing a bad job of reaching the correct people with your marketing.

In a lot of cases, you will find that your issues are mostly tied to different factors. The sooner you figure this out, the faster you can come up with a solution.

Increased Expenses

If you have healthy gross sales or revenue numbers then you might not have a sales problem. The next thing to investigate is your expense sheet. If your revenue is high and cash flow is tight, it is reasonable to believe that something is happening after the sale. Your money is heading somewhere and your sheet should shed some light on this.

It might be easy to ignore your expenses when things are fine and cash flow is positive. But as soon as your budget gets smaller and tighter then you no longer have the luxury of not caring.

Poor collection

It is also possible that your sales are healthy and expenses are minimal but you are still experiencing cash flow related issues. If this is true for you then you should definitely take a look at your account receivables and go over everything that is happening in this area. It is possible that poor collection is actually dragging down your business.

Don’t assume that non-paid invoices are normal. You cannot prevent payments that are delayed in every situation but you should not accept them as a natural part of running a business. Bad collection efforts will come back to haunt you if you are not careful.

Managing cash flow issues can be difficult, keeping an eye on everything is not easy or even plausible for a busy business owner. Hire a bookkeeper to keep a close watch on everything so you can focus on growing your company.