Common Reasons for Poor Cash Flow

The term cash flow is a great description of the money your business takes in and spends. Like a flow of water, your working capital needs to move smoothly. If you find yourself without money at important times of the month, it’s the same thing as finding a pipe that’s leaking water everywhere. Finding the source of the leak and fixing it for good is important for your company’s short-term and long-term financial health. What causes cash flow problems?

Small Cash Flow Issues

Sometimes, your working capital works OK, but you notice room for improvement. This is like the small drip of a faucet. It doesn’t damage your business, but it’s wasting a lot of money over time. That money could be better spent on business growth instead of pointless items. What are some examples of these small drips?

Services You Never Use

It’s common for service providers to try to upsell you various add-ons for the products you purchase. This is what happens when you buy a new computer system, for example. For a “discount” price, you can add an extended warranty or 24/7 helpline services. These things aren’t always a waste, but they often are.

The same thing happens often with business accounting and management software. You may find yourself talked into a ton of features that are way beyond what your company needs. Why purchase a license for five devices if you honestly only use one device to manage your company?

Wasted Team Time

Payroll expenses can add up quickly, too. Improving work efficiency can have a huge impact on the amount of capital you need for operations every month. Think about this: If you have 10 employees and you can structure their work so every employee works just three fewer hours a week, that’s a whopping 120 hours worth of money you’ve saved. If you pay $12 an hour, that comes to an extra $1,440 a month for other needs.

Large Working Capital Leaks

Bigger problems with cash flow are often signs of billing problems. Sometimes, it means you’re forgetting to bill your clients right away after shipping products or performing services. Don’t wait a week before you remember to make an invoice. Some business owners invest in portable point-of-sale systems for their drivers or work technicians so billing can happen on the spot.

If possible, incentivize your customers to pay you faster. A small discount for early payment may be worth it if you can keep your suppliers happy.

Seek Expert Assistance

Financing is arguably one of the most important aspects of launching a business because you must have funding to meet company goals and sustain your startup when the economy naturally fluctuates. Finding good commercial finance solutions should be one of your top priorities if you want to build a thriving business, and JT Commercial Capital includes many avenues of financing in our portfolio of funding options.