DollarBreeders

Why Having a Strategy for Managing Cashflow Could Save Your Small Business

There are a number of fundamental reasons why people borrow for smaller business operations. For fledgling and start-up businesses, this will likely be for the purchase of working stock and equipment or to provide a reserve of working capital. For…

Cashflow can be one of the most challenging things in certain lines of business. If you often find yourself having to pay out for things like staff wages, materials, and overheads while waiting for customer invoices to be paid, you will know how much of a strain it can be. In the worst cases, it can leave you having to take money out of your own savings to cover business costs due to cashflow issues, and of course, this isn’t always something you can do.

Small Business

Cashflow Management

Good cashflow management is therefore absolutely crucial to your business, however many business owners think that all this takes is strict invoice payment deadlines and being careful about spending when payments are pending. In reality, most experienced business owners report that even with the best of intentions to keep a handle on the money coming in and out of the business, times of poor cashflow still arise – along with all the stress that comes with it.

In fact, cashflow issues can be a reason why some businesses fold – if they don’t have the cashflow coming in to pay for the things they need to continue providing their products and services, the business can become untenable. This means that a cashflow management approach that will protect your business will need more attention, especially if cashflow is an important factor in keeping your company operational.

How Cashflow Issues Can Arise

There are lots of reasons why you can end up with a bad cashflow situation, but usually it’s due to waiting for invoices to be paid. Some customers may have slow internal processes or simply only pay at the last minute for strategic reasons, and this can cause a lot of frustration. The fewer clients you have, the worse it can be, as you can end up dependent on the payment dates they manage. This means that if you’re a business with a few major clients in which most of your trade is with, you can be most sensitive to cashflow issues.

Invoice Financing

An option that may be available to you to protect yourself from the dangers of negative cashflow is invoice financing. This is where you gain access to some, or all, of the funds you are expecting from open invoices from an invoice financing company, who then receive repayment when the invoice is paid. Of course, companies that offer this do take a fee for the service, but this can often be seen as a reasonable overhead for removing any challenges to your business that cashflow situations can cause.

Cashflow and Growth

Having an invoice financing arrangement in place can also make it easier if you are strategizing to spend money on things that will help your business expand. Knowing that your plans won’t be held up, or even ruined by waiting for payments coming into your business, can allow you to go ahead with confidence.

Cashflow management is crucial to most types of business, so be sure to know what options are available to help you.

Managing Cashflow

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DollarBreeders is a personal finance blog dedicated to people who want to take control of their finances and secure their future. Here you will find personal stories to inspire you to make better and more informed financial decisions. We aim to help people understand personal finances better and meet the challenge of living comfortably within the budget.

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