It doesn’t matter how big or successful your business is. Cash is key. Maintaining a healthy flow of cash throughout the business, is the lifeline to keeping the business trading. Simply if you don’t have the cash to flow through your business, you may not be able to cope with the day to day dealings of your business, let alone your overheads. Naturally the business will inevitably encounter some problems. When setting up your business and planning things out, more likely than not, you will know that at some point you will come face to face with these difficulties. The important this is being prepared for these issues when they hit the business.

Likely causes of cashflow shortages

For the majority of start-ups, it’s simply timing. If you’re business is doing everything it required to be successful, but your clients won’t pay on time, how do you cover outgoings on time? It leads to owners being left short of cash and unable to pay bills. Even if your sales are high, if the cash isn’t coming into the business quickly enough, trouble will hit.

Cash flow problems can sometimes occur through no fault of the business. You could be hit with a large unexpected cost that you didn’t see coming. Ultimately making sure that you have cash in reserve is vitally important for covering these costs. Having enough in reserve can also help cover quarterly or yearly tax bills.

Good planning can be a huge help in managing cash flow. Taking into account all incomings and outgoings, then implementing them into a cash flow forecast, is a huge part of setting up for any business. An owner has to consider the timing of all income and outgoings to make sure they don’t run out of cash.

New start-ups must also make sure that during the planning process, they take into consideration seasonal variations. Some businesses may rely more heavily on summer or winter months, so it’s essential to spend wisely and make sure you have enough cash for the remaining months.

Efficiency with outgoings and incomings

There are simple things an owner can do to make sure that cash remains a steady entity within the business. Trying to make customers pay in a timely fashion seems obvious, but not enough businesses stay on top of it, especially start-ups. Following up outstanding invoices with your clients immediately is a sure way of staying on top of them and ensuring that they pay within a reasonable time. To reduce the chance of suffering bad debts, check new customers’ credit scores before you offer them credit.  Look at how reliable they have been previously at paying can give you a good indication of the risk of offering credit.

Making deposit payments your business norm is another great option of bringing in cash that bit quicker. Getting a percentage of your invoice means you aren’t strapped for cash and waiting on a client for full payment.

In terms of outgoings, taking full advantage of repayment terms yourself can help manage cash flow and give you more time if you’re short on cash. Try to time your expenditures so that they run in parallel to when the business receives its payments.

If you are short of cash flow and unable to pay a supplier on the due date keep your suppliers informed and if possible make a part payment until the full balance can be paid.  To keep a good relationship with your suppliers, it’s key to be honest with them. As a customer to them, they will want you to succeed and might give you extended terms when it comes to paying them.

How can you get yourself out of trouble?

If you’re already in trouble with your cash flow, thankfully there are solutions available.

B2B businesses can turn to invoice financing, which can be a fantastic option, especially if you have a lot of late paying clients. Effectively invoice financing allows the business to obtain an advance based on the value of your invoices and frees up a lot of cash.

A factoring company will first asses your invoices and the potential risk involved. They will then advance you a sum up to a certain value of the invoice, before collecting the payments from your clients, taking back what they’re owed before returning any remaining cash. Not only does this aid any cash flow, it also frees up time for an owner to work on the business, which is especially important for start-ups.

Another simple solution can be found in the form of a business overdraft. The amount available to you is agreed with the bank beforehand and is designed to meet the business needs. If this is a temporary arrangement and a relatively modest amount the bank may lend unsecured. However, a more permanent arrangement and for larger amounts is likely to require security.

Alternatively, you could apply for a bank loan. The bank will usually ask for a business plan particularly for larger amounts. In simple terms, this will outline why you need the loan, what it will be used for and importantly how you are going to pay it back. They will also consider the likelihood of things “going wrong” and to that end with a new business they may ask for security as a backstop.

If despite your best planning, you run into serious cash flow problems, the worst thing you can do is ignore them. Speak to your accountant or contact a licensed insolvency practitioner without delay. They will help you assess the situation, look at what options are available and formulate a recovery strategy.