cash flow problems
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Small businesses are known to suffer from varied cash flow problems. Is there anything more terrifying or essential to the survival of a small business than its cash flows? Manage it properly and you won’t just feel amazing but your business will prosper.

However, managing your cash flows poorly will land you in trouble. And a lot of trouble at that.

The reality is most businesses have cash flow issues. Regardless of business size, industry, or management abilities. However, it is possible to take preemptive steps that protect your business from severe cash flow problems.

Avoiding cash flow problems

With this knowledge, you have one key goal: Do not manage your cash flows into the ground. A steady business cash flow management plan will help grow your business.

Here are five ways to protect your business from cash flow problems:

1. Forget just-in-time client payments

It can be very tempting during lean times to believe that the client who has always paid you on time will continue to do so.

Why not go ahead and send that check out? The money from your client should be in the bank by the time the vendor cashes it, right? Wrong. Don’t count your chickens in the cash department until they’ve hatched.

Not only do you risk alienating a valuable vendor, but the charges and fees you’ll accrue if the money doesn’t come in will only make your cash flow problems worse.

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Instead of crossing your fingers and relying on an unknown future to go the way you hope it will, look into what will be required to get a bank loan or line of credit before you need one.

You should also have a credit card for small business needs. While credit cards can create their own problems if managed inappropriately, they can also fill in necessary gaps from time to time.

2. Get a deposit on projects

Should you charge clients an upfront fee to work on their project? This question divides more than its fair share of small businesses, especially freelancers. While recurring billings are great, it’s not unfathomable for small businesses to live from client to mouth, or so to speak.

There are incidences when taking a deposit is the smart approach. Especially when the business is low on reserve cash.

Even if you have worked with a particular client for years, when jobs are especially large or hairy, it is best to get a deposit upfront so you can give yourself a little cushion to survive an elongated period of work on a project.

The fact that you’re going to make a killing in six months is no comfort when you need to pay the electricity today. Get a down payment on some jobs that will lighten cash flow for a period of time, and keep paying yourself, your employees, and everybody else who keeps you in business.

3. Prioritize your cash outflows

Simply put, you should know exactly who to pay, when to pay, and how much to pay. This is the basis of cash flow management in a business. It also matters to find ways to reduce your outflows.

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Many small-business owners are excellent managers of their own finances — it’s one of their many good qualities that gave them the confidence to take a risk and go into business for themselves in the first place.

cash flow problems

Because of their positive history in managing their own finances, however, many small-business owners approach their business finances with the same rigor and practices they’ve applied to their own finances.

On the surface, that seems like an excellent idea. In practice, however, this can lead to disastrous outcomes. Just because you’re used to always paying a personal bill the day it arrives doesn’t mean your business has to take the same approach. Is the due date 30 days out?

Be wise about who you actually have to pay and when since doing so can mean the difference between making payroll or not. Oh, and your employees always have to be paid.

4. Do not spend tax money

All that money you are setting aside for sales and other taxes must be as though it didn’t exist. For small businesses in a cash flow pickle, however, that can feel like madness.

After all, what’s the harm in borrowing from the tax stash if you pay it back in time? None, provided you pay it back in time.

But learning to cover your cash flow troubles with tax money that absolutely has to go to the government isn’t going to solve your cash flow troubles. It will, at best, buy you some time.

At worst, it’ll get you in serious trouble with the tax authorities. Resist this temptation at all times and all costs. It just isn’t worth the risk. Does incurring a Ksh 20,000 late penalty from the Kenya Revenue Authority excite you?

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5. Incentivize getting paid

When you’re a small-business owner, it can sometimes seem like everybody who owes you money is suffering the same cash flow concerns you are.

One way to tackle this problem is to incentivize getting paid. If a client gets a 10 percent discount for paying early, they’ll definitely be more inclined to do so.

After all, that will save them money and help solve any cash flow worries they’re currently embroiled in themselves.

If you can’t offer lower prices as an incentive, offer a discount or special service on future work when cash is delivered early and on-time.

Managing business cash flows

The financial situation of two businesses is rarely similar, and your situation is unique. However, the strategies discussed in this article apply across the board.

It will therefore be useful to how you drive your enterprise forward, from planning different incentives, making payments and even budgeting for future cash flows. This guide will lead your business to prosperity. And we know you want to get it there. Good luck.

About the author

Vani has a keen interest in investments, entrepreneurship, and small businesses.

Vani Ongaya

Vani has a keen interest in investments, entrepreneurship, and small businesses.