• New Wave Accountants

Surviving a Cash Flow Shortage: Our Guide

For business owners, cash flow shortages can be incredibly stressful to deal with. You may think that management and product issues may cause your company to tank, but the reality is that far more problems are caused by insufficient cash flow. When such a problem occurs, nearly all parts of your business operations can take a significant hit as they require daily funding and maintenance to be carried out properly.


Many businesses end up failing and shutting down because they could not circumvent the cash flow issues they faced. Because these problems can quickly snowball until a company takes a complete nosedive, you must be prepared once you face it.


Read on for a guide to surviving a cash flow shortage.


How Cash Flow Issues Arise


If you want to take action and develop a strategy to survive and reverse a cash flow shortage, you must understand why and how they can happen in the first place. With a proper understanding of where things can go wrong, you’ll be able to recognise a growing problem and take action long before budding issues grow into irreversible crises!


To help you understand what you might be dealing with, here are some of the most common reasons your business can end up with a cash flow problem:


  • Poor inventory management: One of the most common catalysts of cash flow problems for businesses all over Australia is poor inventory management. When this occurs, businesses accumulate waste and losses by having an excess of stock lying around that tie up valuable cash that could be used for other purposes.

  • Delayed payments: Some businesses experience issues with their cash flow because of delays in payments owed to them, resuling in a large accounts receivable balance. Although a larger balance correlates to more sales and a larger asset figure in balance sheets, the fact of the matter is that you cannot use them to pay for your day-to-day expenses. Unfortunately, this can lead to other issues such as a difficulty in cash flow forecasting, leading to incorrect reversal steps along the way.


Preparing Your Business for Survival


After acknowledging the fact that you have a cash flow shortage, you’re probably wondering what you can do to turn the ship around. For things to let up and help your firm enjoy much-needed stability in its finances again, here are a few key practices you need to follow:


1. Double Down on Receivable Collection


To reverse the effects of a cash flow shortage, you must take your receivable collection efforts up a notch. This can be done in various ways, such as:


  • Accepting pre-orders

  • Requesting partial payment upfront (such as a 50-50 or 30-70 set-up)

  • Sending out your billing faster

  • Regularly calling past-due customers

  • Offering mobile and credit card payment options


2. Negotiate for Lower Costs on Your Expenses


If you’ve been working with your suppliers or partners for some time, you have an advantage that you can use in the event of a cash flow shortage. Having established connections and working relationships will give you the necessary leverage to negotiate for lower expenses. Fortunately, many vendors are amenable and flexible when lowering costs or charges during tight situations. All you have to do is reach out.


3. Ask an Expert to Help You Out


While there are many different things that you can do to ensure that you get your cash flow back on track, one of the most effective solutions is to enlist the services of an accounting service. With the help of an expert like New Wave Accounting, you can have a skilled and seasoned professional go over your finances and implement the necessary measures ASAP!


Conclusion


Dealing with a cash flow issue in your business presents the need to act fast because of the implications that can seep in quickly over time. By watching out for key signs and implementing the necessary measures, you can prevent your finances from sinking and ensure that you return to a state of profitability.


New Wave Accounting is a small business accounting firm in the Gold Coast specialising in various services, such as company set-ups and outsourced bookkeeping and accounting services. We also provide end-to-end accounting and bookkeeping services that help scale and grow various businesses. Get in touch with us today to see how we can keep you in financial shape!

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