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5 Cash Flow Issues Affecting Small Business

5 cash flow issues your business might have or may be dealing with. Money $1 bills background unsplash

5 Cash Flow Issues Affecting Small Business

Are any of these 5 cash flow issues affecting your small business? Don’t let this ruin you. Cash flow is the money that flows in and out of your business. You typically calculate it and measure it over set periods for instance, monthly, annually, or quarterly. A large number of small businesses encounter cash flow issues at some point in their dealings. Fortunately, you can prevent most cash flow issues with some preparation and the appropriate strategy. Read on to check out our solutions. Without further ado, here are 5 Cash Flow Issues Affecting Small Business.

How Excess Overhead Expenses Affect Small Business Cash Flow

5 Cash Flow Issues Affecting Small Business. Excess overhead stress is a lot of money in expenses required to run a business's operations.

Overhead costs are the expenses of operating a business though they aren’t related to selling a specific service or product. Examples of overhead include rent and utilities, and although they are important to your business, they could easily get out of control relative to your business’ revenue.

High overhead costs are especially challenging since they are persistent. The solution to this involves auditing your expenditures and cutting where possible.

Solutions for Excess Overhead Expenses

The solution for excess overhead is to reduce overhead. Obviously, what to do is not rocket science, but how to do it seems like it can be at times. Some examples of reducing overhead are as follows:

  • Terminating (depending on your contract terms) or not renewing your current building lease and going fully-remote
  • Conduct a process review to see if automation may be available to allow you to trim your workforce
  • Reassess all of your contracts and renegotiate contract terms (if applicable)
  • Outsource business functions that consume more costly resources
  • Invest in an accountant and have them run a financial analysis of your business
  • Hire a financial advisor to help maximize your business’ investment instrument holdings

There are many ideas out there to help you reduce your fixed costs and improve your bottom line. However, take care not to cut excessively, and please take heed of this as this could affect your business. If you cannot cut back as much as you would like to without causing detriment, consider cheaper alternatives.

How Rapid Expansion Affects Small Business Cash Flow

Rapid expansion is growing too fast and not being able to keep up with the demands.

Most business owners want to grow their businesses, however, growing too fast can cause cash flow problems and excess pains. Increased demand for your products and/or services is usually the main culprit behind cash flow concerns. Operational inefficiencies can arise from uncontrolled expansion and that will surely cost you time, money, and other valuable resources. Negative customer feedback will begin trending higher as a sign for operational struggles. Lastly, and arguably most importantly, your ability to lead and manage may suffer as increased demand applies pressure on processes.

Solutions for Rapid Expansion

You have two choices here: pump the breaks or improvise! If you are looking to maintain your position within your comfort zone, go with the former. Choose the latter if you want to grow, and you want to potentially realize economies of scale. Here are some solutions that will help you deal with this scenario, should you encounter it.

  • Focus on keeping the customers’ experience the number one priority
  • Forecast cash flow requirements
  • Analyze receivables and payables
  • Ensure to maintain adequate staffing
  • Outsourcing non-essential business functions
  • Increase debt by acquiring more/larger lines of credit to fund rapid scaling

Always ensure you are hearing your customers and exceeding their needs. This will protect your business from the aftershock of rapid growth. While keeping tight control over your debt, also consider increasing your debt to finance your growth. Once your clients’ payments are received, focus on paying your debt back down. This allows you to have the available cash you need, when you need it, for the cost of loan interest. Ensuring you maintain adequate staffing to prevent your employees from becoming overworked, overwhelmed, and jumping ship. Outsourcing non-essential business functions may prove to be a valuable investment should you have scaling issues or concerns. As long as your customers and employees remain happy and incentivized, respectively, then you’ll be set to ride it out.

How a Humongous Order Affects Small Business Cash Flow

Large Order that is too big to handle requires too much cash infusion.

Small businesses frequently regard a very huge order from a choice customer as an indication of success. Huge orders turn into huge deliveries, which generate considerable profits provided you have the resources to meet the order. Oftentimes, novel issues can arise that can affect the success of the gigantic undertaking. Here are some possible solutions for handling this scenario, should you hopefully find yourself in it.

Solutions for a Humongous Order

Should you find yourself in this scenario, you will have two choices: accept or reject the order. The fact of the matter is, some orders are just too large for some business to fill. Hopefully, you will have tracked your output levels and you will be able to accurately determine what you can handle. You should also determine how much scaling is needed to fulfill an order that is just outside your current capability. If you are going to pass, you could recommend your weakest competitor to the client to take their order. You could also use your leverage to facilitate talks of potential partnerships, agreements, or strategic alliances. If you accept the challenge, only if you are able to fulfill it, here are some solutions for you.

  • Obtain term credit from vendors to finance the order
  • Obtain purchase-order financing or factor invoicing
  • Maintain top-notch productivity and adequate staffing to prevent burnout
  • Keep tight reigns on debt and expenses – this is not a time for growth so do not take on more than required
  • Develop/maintain good relationships with local temp agencies

While negotiation can be difficult, it’s possible if your payment and production cycles are short enough. You could also consider purchase order funding, which helps pay for the supplier costs associated with an order. In addition, be sure to maintain a productive, incentivized labor force, control debt and expenses, and secure excess labor, as needed.

How Bad Debts Affect Small Business Cash Flow

5 Cash Flow Issues Affecting Small Business. Bad debt loans interest unforgivable discharge bankruptcy next until debt tear us apart.

Bad debt arises when you offer a service or sell a product to a client who doesn’t pay. These debts can be crippling, especially for new businesses. These debts can also arise very easily if you do not implement a suitable credit control system early on. Even with a suitable credit control system, bad debt can still occur and threaten your business’ cash flow.

Solutions for Bad Debts

  • Collecting the debt by more aggressive means
    • Involve a debt mediation service
    • Send a demand letter
    • Take legal action
      • File for a lien or Charging Order
  • Offer a settlement
  • Work out a repayment arrangement
  • Forgive the debt, take the loss, and attempt to recuperate (only if you know that they are insolvent)

A credit control system describes the process a business implements to collect cash owed by its clients. The solution to this issue involves reviewing your clients’ commercial credit before extending payment terms. It is prudent you offer terms only to customers who maintain a solid record of payment and good credit. If you realize a customer has a poor credit record then you can request an upfront deposit to protect yourself.

This is a great plan for most, but some of us did not have a credit control system in place. For those that did not have a plan in place, unfortunately, your choices are quite limited. Taking a more aggressive approach only helps if they are not insolvent and there are owned assets not under lien. Keep in mind that further action will require expenditure, so pursue this route only if collection is necessary for survival. If a cost-effective solution is required, try to work one-on-one with your customer. Offering a settlement or a repayment arrangement may help to alleviate roadblocks to collection while salvaging the business-customer relationship. Lastly, forgiving the debt, swallowing the pill, and moving on may be your best bet. If your customer is insolvent and has no valuable assets not under lien, then you could end up with nothing. After the cost of the cumulative collection attempts, the debt may have risen considerably more.

How Profit Problems Affect Small Business Cash Flow

Profit problems is a culmination of these issues that manifest into this one major issue.

A lack of profit will ultimately result in the lack of cash. The time it takes for a business to run out of money depends on various factors. Typically, a lack of profit is due to a lack of revenue or excessive expenses. If you find yourself in this situation, look into these areas on your financial statements first to start your search.

Solutions for Profit Problems

  • Review financial statements for indications of problem areas
  • Consider raising prices
  • Reduction in overhead
  • Inconsistent execution in strategies
  • Need to readjust your market awareness


Remember, obviously, no business can maintain indefinite losses. For instance, a business can still survive on cash reserves, possibly from former profits or cash injections for instance bank loans. However, a business that experiences consistent losses will eventually exhibit the depletion of cash reserves and business failure. If you are losing cash, it is necessary you unearth the origin of any losses and handle them as soon as possible. Reviewing your financial statements for indicators is a great place to start. Reviewing your strategies and comparing them with relevant case studies or other successful companies’ strategies may help you to identify the primary issues.

Final Thoughts

Small businesses usually face any or more of these cash flow issues, especially when starting out. These issues can be serious, possibly threatening to shut your business down. Nevertheless, paying keen attention to these problems and developing solutions will help ensure your business thrives. We hope you have found this article to be helpful and informative.

Out of the Box Technology is an Elite QuickBooks Solution Provider (QSP). We provide our clients QuickBooks products and end-to-end Business services and Data services through our talented team of ProAdvisor Advanced Consultants, possessing over 360 years of combined QuickBooks experience. Out of the Box Technology’s motto is “Anything + Everything QuickBooks, It’s really that simple.” Contact us and let us show you how simple it really is! And don’t forget to check out our Company Blog for Free Resources, valuable How-To’s, and TONS of frequently added QuickBooks content!

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