Good cash flow is one of the most important aspects of building a healthy business. It has often been cited that cash flow problems are one of the biggest contributors to failure in small businesses. Businesses such as faced cash crunch but had solid financial plans that helped steer the business ahead in challenging times. It is very important to fix cash problems from the onset when setting up a business. Starting on the wrong food can be challenging to recover. When in business, it is important to keep an eye on your cash flows and correct any mistakes that might come up.

Let’s have a look at common cash flow problems that face businesses today, and understand how to deal with such.

Underestimating starting capital

If you are starting a business, it is important to get a realistic budget that can help you get started. Unrealistic expectations and a lack of cash reserves will have you get started on the wrong footing. It can be very challenging to run out of money before you can even get started. Ensure you draw a realistic budget that can help you get started in the right way and give you the advantage to deal with common shortcomings.

Expecting profits too quickly

When you open the doors for your business, you probably hope that customers will be lining up waiting to make purchases from you. However, that may not always be the case. Research has shown that small business owners can work up to four years to reach profitability in their business. It can take time to build a profitable business. Nearly one-third of businesses close shop within the first year of their operation.

Not creating a cash flow budget

It can be detrimental not to create a cash flow budget. A cash flow budget is an estimate of the cash you expect to receive and the cash flows you expect to pay during a certain time. We can also call this cash flow forecast. If you want to create a cash flow forecast for the next 30 days, you need to project how much cash you expect to receive and spend in the next 30 days.

Overlooking high overhead costs

If your overhead costs are too high, your small business will be faced with a lot of cash flow problems. High rental costs, expensive car leases, and logistics costs can eat into your profits quickly. If you have high overhead costs, you will be fighting a tough battle. You will need to sell more to cover the costs of your overhead. Alternatively, you can reduce overhead costs.

Collecting receivables too quickly

If you have success in selling for your business but your customers are slow in paying, that can put you on a tight spot. Collecting receivables too slowly can slow your growth and put you into a tight spot. You will be faced with lots of problems in paying your bills on time. You need to put a receivable process in place and only extend credit to those customers who have a rich history of paying.