4 Ways For New Businesses To Avoid Cash Flow Problems

If you’re starting your own business, chances are, you’ve heard the term ‘cash flow’ a lot. It might seem like it’s all anybody talks about, but there’s a reason for that. So many new businesses fail before they’ve even had a chance to get off the ground because they don’t manage their cash flow properly and they spend all of their startup capital before they manage to break even. When that happens, you’re working on borrowed time (and money) and there’s only so long you can survive before you eventually have to shut the business down.

In some cases, new businesses have cash flow problems because they simply can’t find a market for their product, but that’s quite rare. More often than not, it’s because they’re making simple mistakes with their finances. The good news is those mistakes are easily avoided if you know what they are from the start. These are some of the best ways for new businesses to avoid cash flow problems.

Get Paid On Time

This might sound obvious, yet so many businesses are terrible at it. You might be getting a lot of interest in your business but if those customers aren’t paying you on time, and in the full amount, you’re still going to have issues with cash flow. You’re spending the money to manufacture products or provide a service, but you’re not seeing any money coming in. There are a couple of simple solutions to this. First off, you need to invoice people promptly because they’re not going to pay you until they’ve received an invoice. Make sure that you keep copies of all of the invoices for yourself so they can’t argue the price further down the line. When it comes time to pay and you still haven’t received the money, don’t just leave it and hope that they’re going to pay you in a few days when they get time. Get on the phone to them and ask for your money. A lot of new business owners are bad at this because they worry about alienating customers during the early stages, but the thing is, they owe you money and you’re well within your rights to ask for it.

If you have persistently asked for payment and still not received it, you may need to consult a lawyer and look into taking legal action. You’ll find that most of the time, it won’t come to that and the customer will pay up when threatened with court action. It’s important that you have a zero tolerance policy toward customers that don’t pay right from the beginning. If you don’t, it sets a precedent, people will start taking advantage and the problem becomes worse.

Manage Contracts

It’s likely that you’ll have contracts with manufacturers and shipping companies that you’re paying. It’s important that you manage these contracts properly and you know exactly how much you’re paying out. If you’re not on top of it, you might be unaware of price increases or changes to the service and so you may be paying more than you realize, which is going to have a big impact on your cash flow. It’s best to use a contract management system because these things can get complicated. If you’ve got multiple contracts that refer to one another, a change to one will impact the rest. If you’re trying to handle those contracts yourself, you can easily miss things like that. But a contract management system will keep on top of it for you so you know exactly what you’re paying out each month.

Keep Good Records

Sometimes, businesses run into cash flow problems because they aren’t tracking their finances properly. Good bookkeeping habits are so important because you need to know exactly what you’re earning and what you’re spending each month. If you don’t know that, it’s so easy to overspend and put yourself in a financial hole. Not keeping good records also makes it harder to anticipate cash flow problems which is a big issue. If you’re able to recognize when your financial situation is bad early on, you can take steps to cut spending and manage things properly. It’s not the most exciting part of running a business, but good bookkeeping could mean the difference between success and failure.

Hire Sensibly

Staff costs are one of your biggest expenses so it’s important that you manage them properly. Before you decide to hire any new employee, you need to think about whether it’s really necessary or not. Are they filling a skills gap in the company? Are they taking on work that nobody else has the time to manage? Can you actually afford to pay their salary? If you just start hiring people for the sake of it when you could realistically manage with the employees that you currently have, you’re wasting a lot of money.

If you can tackle your cash flow issues and learn to manage your finances properly from the very beginning, your new business has a much higher chance of success.