Regardless of whether you’re a B2B wholesaler or a B2C merchant, maintaining a healthy cash flow is essential to running a successful business and building the foundations you need to grow over time. Without adequate forecasting, cash flow problems can creep up unexpectedly even for highly profitable businesses.

The consequences of negative cash flow are far-reaching: not having enough cash to pay the bills, having to acquire more debt, not being able to service customers’ needs and meet demand, and ultimately, developing a poor reputation that’s difficult to bounce back from.

The upside is that most cash flow issues can be rectified. Here are four of the most common cash flow problems and their solutions.

1.     Growing too quickly

Many businesses make the mistake of investing in resources such as staff or warehouse space in anticipation of sales that don’t eventuate. If you jump the gun in trying to scale up, you’ll be left with unnecessary expenses like increased rent and higher inventory holding costs, and you may not achieve the profits needed to pay for those expenses.

This is where reporting and forecasting come in. Using analytics tools will give you insights into inventory and sales trends so that you can plan accordingly for the future. Similarly,  sales and inventory forecasting reports allow you to use historical sales figures and other data to accurately predict upcoming periods – meaning you’ll be able to make investment decisions based on data rather than guesswork.

2.     Messy accounting

It’s near impossible to accurately keep track of revenues and expenses if you have a disorganized accounting system. Improper accounting leads to errors, which lead to making business decisions based on misinformation about the status of your cash flow.

You can avoid accounting mishaps by investing in a dedicated accounting software solution such as Xero or Quickbooks and managing all of your incomings and outgoings from the one location.

3.     Late payments or bad debts by customers

It’s no surprise that when customers don’t pay on time (or, worse still, don’t pay at all), your cash flow is negatively impacted.

Make sure to follow up on late payments with customers and even consider incentivizing early payments by offering a small discount. Making the payment process as streamlined and hassle-free for customers is also key to ensuring payments are received on time.

4.     Your business is not profitable

A business without adequate profits simply won’t have the incomings needed to keep cash flowing steadily. However, while making more sales is great for profitability, boosting profits isn’t all about bringing in more revenue.

Consider ways you can cut down on expenses to increase your net profitability. For example, using our inventory forecasting tool, you can more accurately determine when and how much stock you’ll need to order and keep inventory holding costs as low as possible. Likewise, you can also bump up prices slightly to boost profit margins and encourage bulk buying to increase total order values.

Once you’ve increased cash flow through lowering costs and increasing order values, you can then look to invest in marketing efforts and other resources to bolster revenue as well.

With our free cash flow model, you can also accurately track revenues, orders, and cash – giving you insights into what your cash flow will look like over time and allowing you to plan ahead.