Five common cash flow challenges and how to overcome them | Kriya (2024)

Conquer your cash flow challenges today.

In a perfect world, every business would have cash flowing in constantly, while the tap flowing out is tightly shut.

Unfortunately we don’t live in this utopia, although we all wish we did. In this world, every business has to deal with cash flow challenges from time to time. Problems like money flowing out too fast, having to pay before getting paid or needing to spend money to make it.

So what are the most common challenges that small businesses face today? And how can you handle these cash flow challenges like a pro?

In this article, we’ll take a closer look at these five ways to get control of your cash flow:

1. Remember your cash reserves
2. Grow, but not too fast
3. Pay attention to pricing
4. Keep an eye on cash flow
5. Prepare, prepare prepare

1. REMEMBER YOUR CASH RESERVES

We’ll start with something that many business leaders forget to think about: cash reserves. Savings; money that’s yours but you’re not supposed to touch unless you really need it. Seriously, try really hard not to touch it.

As a business leader, all your hard work should result in steady growth for your business. Unfortunately, this growth usually needs an influx of working capital and it’s useful if you can manage this inhouse. Although we realise that this is not always an option, the concept here is simple. Build up cash reserves when times are good, so you have something to fall back on when business is slow.

2. GROW, BUT NOT TOO FAST

Growing too fast might not seem like a problem but if your cash flow can’t handle the rapid expansion of your business, you could find yourself in deep water. There are a few things to be aware of during this time of growth, so you don’t have cash flow issues.

When signing new clients, be aware that they might not pay your invoices for 30, 60 or even 90 days. This means you’ll have to cover the upfront costs before seeing any of your invoices settled.

Of course, we all want to see that big client sign on the dotted line, but remember that a large order/contract that you’re not used to handling could put pressure on your cash flow. Make sure you have the resources to fulfill your commitments before you take them on.

3. PAY ATTENTION TO PRICING

This one’s simple: don’t undervalue yourself or your products. You’re worth every penny so make sure that you’re charging enough for your products or services. You can do real damage to your business and brand by getting the pricing wrong. Take some time, do the research. You won’t regret it.

4. KEEP AN EYE ON CASH FLOW

It’s crucial to make sure that you’re monitoring your cash flow closely. Technology has made this much easier for businesses and you can get some fantastic software to help. Software and programs like Fluidly, Xero and Quickbooks are great tools that you can use to monitor your cash flow and keep control of it.

Speak to your accountant about cash flow! Listening to the advice of the people who are in the know will undoubtedly help you manage your cash more efficiently.

5. PREPARE, PREPARE, PREPARE

What’s that old saying again? Oh yes, failing to prepare is preparing to fail. Some products or services have very distinct seasonal peaks. If you manufacture Christmas decorations for example and you haven’t prepared for the festive season coming up, you might be in some real cash flow trouble soon.

A solution to this problem is to get your business ready for seasonal demand ahead of time and take that pressure, both money and time, of your business.

We’ll take a look at the typical phases of a business that’s preparing for seasonal demand below but you may find it useful to read this guide to understanding your working capital cycle first.

PHASE ONE

Day 1 to 100: Orders start rolling in, or you start to build stock for the festive season. Let’s say that you spend about 3 months working hard, all the time hearing those sleigh bells ringing with the faint sound of profit behind it. During this time you’ll need to pay your suppliers and staff plus cover your usual expenses – knowing that your payout will still be quite some time off. Without cash reserves or external finance in place, you might be feeling some pressure on your cash flow at this point.

PHASE TWO

Day 100 to 180: The festive season arrives and things start getting busy. Your orders get delivered, your clients are serviced and you send out your invoices. But wait… your clients won’t pay for another 90 days, leaving you sweating shiny baubles instead of making them. Until finally the day arrives that your invoices are settled, several months from the initial expense. A solution to this waiting game could be invoice finance, enabling you to skip the waiting and advance the funds straight away.

In the UK, 27.4% of revenue is driven by seasonal peaks, and not enough businesses are preparing for these constraints on their cash flow. This could mean that you could get to a point where you need to turn down business just because you don’t have working capital readily available. In fact, more than half of UK businesses are not checking their cash flow regularly or asking advice about dealing with seasonal demand. Check out this infographic for more on these trends.

Click here for more information about how you could improve your cash flow with invoice finance or a business loan from Kriya.