Top 10 Signs You Have a Cash Flow Problem (and how to fix it)

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Top 10 Signs You Have a Cash Flow Problem

Business is going great. You’ve got an innovative product, happy customers, and busy employees. It all seems perfect until you look at the end of the month and realize you’ve got forty two cents in your business account. Perhaps your first reaction is to see who’s embezzling your money, but chances are you just have a cash flow problem.

Cash flow issues can creep up on small business owners, when you’re too busy to examine the books and ignore small warning signs. Here are some warning signs you’ve got serious cash flow problems, and ways to fix them before your bank account ends up empty.

1.  Lots of short-term debt

The Problem: You’ve suffered the embarrassment of a waiter returning to the table not once but four times to tell you credit cards were declined. And you literally have to think about how many short-term cash advances, loans, and merchant advances you have outstanding.

How to Fix It: Stop trying to solve your cash flow problems with short-term infusions of cash. The increased debt – and the interest that comes along with it – will only dig you deeper. Look at ways to cut costs or contact the business so you can pay these debts down before assuming any more.

2.  You rely on your big customers to get you through

The Problem: You find yourself laughing at way too many unfunny jokes from the purchasing manager at your biggest client. Because if they don’t order 20,000 units this month, you might not make payroll. The boom-and-bust cycle of depending on your big hitters to fund your entire business makes your cash flow dependent on their business needs, and if you lose them you might be out of business.

How to Fix It: Find a new market you haven’t yet explored. Obviously, you still want to give great service to your existing customers, but start thinking about areas and demographics you haven’t targeted before, broaden your client base, and become less dependent on a few big spenders.

3.  Too much inventory

The Problem: You walk into work every day past towering boxes of unshipped product. It’s sitting there like a lost puppy at a shelter looking for a good home. But until it finds one you’re paying for space to store it.

How to Fix It: Order inventory only as you need it. Using a just-in-time inventory system keeps you from inventory backlogs, and paying for space to store it. Also, look to bundle slow-moving inventory at a discount to get it out the door.

 4.  Sales are down

The Problem: For some strange reason your A/C repair business just isn’t killing it in February. Or maybe you have a less-seasonal business, that for whatever reason isn’t cranking the cash registers like it had before. Though sales don’t always equate to cash, no sales can definitely equate to cash flow problems.

How to Fix It: There is no magic bullet that’s just going to instantly increase sales. But look to your best promotions, bundles, and marketing programs to jumpstart them. Even something that has you breaking even, or a loss leader, will get cash coming in, and hopefully introduce people to your business so they keep coming back.

 5.  People aren’t paying you

The Problem: Though you’ve got plenty of product moving out the door, you’ve also got a big stack of unpaid invoices that you don’t have time to collect. And since you don’t have a line item for “Goon squad” on your P&L statement, the lag time in payment is killing your cash flow.

How to Fix It: There are a few solutions here. First, cut the payment time on your orders to net 30 at the longest. To get people to pay even faster, offer discounts to those who pay in cash or within a week. Finally, carefully screen with whom you do business, and resist the temptation to continue extending credit to people who don’t pay on time, or at all. They may seem like good customers, but if there’s no money going from them to you, they’re actually the worst.

 6.  You’re not getting discounts on your bills

The Problem: Your vendors offer discounts for prompt payment. But you’re struggling just to pay them in thirty days. That’s cash you’re losing out on because even a discount as little as 5-10% can make the difference between turning a profit and not.

How to Fix It: Only order what you can afford to pay for quickly. Though it might require more frequent ordering, unless additional costs are associated with multiple orders this will be more cost-efficient, and keep you from building up inventory in the process.

7.  You put off or don’t pay taxes

The Problem: It’s April 14 and you haven’t even thought about getting your tax information together. “My accountant is so busy,” you say. “I don’t want to bother him.” The real reason, of course, is that you’ve missed all your quarterly tax payments, and know full well you don’t have the cash on hand to pay all last year’s taxes at once.

How to Fix It: Even with a great accountant, taxes are one business expense you can’t eliminate. The disciplined solution is to put aside cash every month into a tax account, and make quarterly payments like you’re supposed to. But sometimes that just doesn’t happen, so if you find yourself sitting at tax time with an overwhelming tax bill, ask your accountant to consider an installment plan. You will have to pay eventually, so the sooner you get it filed the less you’ll pay in interest and penalties.

 8.  Payroll is late

The Problem: Your employees showed up to work on the second day of the month, and they all seemed a little less motivated than usual. That’s because the check they depend on to pay THEIR bills mysteriously didn’t show up on the first, because you lacked the cash to make payroll. It’s the kind of snafu that an understanding employee might accept once. But they’ve probably started looking for more stable employment already.

How to Fix It: If you can’t pay your employees, you probably need to have less of them. Unpleasant as layoffs are, it’s better to make payroll for all your staff then keep people “employed” but not pay them on time. Look at how much you’re missing payroll by, and see where you can make your staff leaner.

 9.  You’re bouncing checks

The Problem: You look at your bank account and there’s a big fat minus sign looking back at you, right after four $20 charges for insufficient funds. You are, quite literally, writing checks your bank can’t cash.

How to Fix It: Small business owners often neglect to look carefully at their books and bank accounts to make sure enough cash is there to cover expenses. Take time every day to look at all your business accounts so you know exactly how much money is there, and spend accordingly. Better to pay a vendor late than pay on time and have a check bounce.

10.  Vendors are hounding you

The Problem: You haven’t answered your phone in two weeks because you assume every call is a vendor looking for money. And you’re not far off. Maybe you’ve made payroll and paid taxes, but everyone else is getting pushed to the back burner. Remember, they’re in business too, and if they’re smart they’ll stop doing business with you if this persists.

How to Fix It: Stop dodging them. Sit down with your accountant and look at when you can reasonably have cash on hand to pay your vendors, and how much you can pay. Then call the vendors and ask to set up a payment plan so they get paid, and you get them off your back.


Matt Meltzer

Matt Meltzer is a professor of business communication at the University of Miami. He is a veteran of the United States Marine Corps and holds a bachelors degree in business administration from UM, as well as a Masters of Mass Communication from the University of Florida.

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