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6 Tips For Small Businesses suffering cash flow problems

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Is your business bank account a bit more barren than you’d like?

Have one or two of your customers missed their payment deadlines and is your cash flow drying up as a result?

If so, don’t despair. Many small business owners will find themselves in this position at some point.

And while it’s not much fun, there are ways through the lean times.

Here are six tips that will help small businesses suffering cash flow problems.

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#1 Reduce your spending

The first step for any business experiencing cash flow problems is to cut down on spending, either permanently, or until money starts to flow again.

Prioritising non-essential expenses allows you to reduce spending without impacting the core operations of your business. Scan through your list of outgoing payments, and if you see anything superfluous, trim it.

Next, look at spending that you could do without for the time being, and pause this. Usually, if you explain that you’re pausing until your financial situation improves, you’ll find suppliers and service providers are understanding. Sometimes they’ll even offer discounted rates or prices to incentivise you back into the fold when things improve.

To reduce the risk of further dents in your finances, try to buy only what your business can currently afford. Make sure you have the cash to cover investments and purchases before you make them.

This advice probably sounds obvious, but you’d be amazed how many businesses don’t do it.

#2 Double-down on outstanding payments

With spending trimmed, the next step should be trying to get more money coming in. Cash flow problems often arise when customers are late paying their invoices. Regardless of their reasons, the bottom line is the same: Less cash for you.

There are several steps you can take to address the shortfall. A gentle nudge, first and foremost, to check it didn’t slip their mind.

If they’re aware and still not planning to pay just yet, see whether there are ways you could accept payment in instalments, or whether you can make the payment process more smooth to incentivise quicker payment.

Some options are to accept different payment methods – perhaps through an online portal, for example – or to shift the billing cycle slightly to meet a client’s needs.

If this keeps occurring, you may need to take longer-term steps. Some businesses offer a small discount for quick payment: A great way to encourage your customers to pay quickly and reduce disruptions to your finances. Other businesses look at invoice finance as a way to unlock the capital in accounts receivable, regardless of the payment habits of the customer.

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#3 Improve your forecasting and accounts

Using objective and realistic forecasting improves your ability to predict lulls in finances. And although this won’t make cash flow into your accounts faster, it lays the groundwork for avoiding similar situations in the future.

If you plan your business spending around over-optimistic figures, you’re more likely to get caught short. If you plan around cautious figures, however, you’re more likely to end up with more fiscal headroom than you expected.

Accompanying forecasts with organised accounts makes it much easier to keep track of your money and to see how much you have to work with. While if the opposite is true, it can be hard to know how much headroom you have.

Working with an accountant is a reliable way to improve the health of your accounts. These trained professionals have the expertise required to keep things in order, and often the cost of retaining their services is quickly regained by time saved.

Business is, by nature, unpredictable. Getting things organised is a way to reduce the risk of getting caught short.

#4 Stick to your budget

The best forecasting in the world is useless if you don’t stick to your budget.

This refers to incoming and outgoing repayments. If you are lax with repayment terms, some customers will take advantage. They’ll put you at the end of the queue. Then, if they encounter cash flow problems, these are quickly passed on to you.

You can preemptively avoid problems by striking agreements with customers you feel concerned about. Is a new customer making an unusually large order, for example? Asking for a portion of payment on delivery is a way to reduce the risk of getting stung.

Similarly, resist the temptation to withhold payment to your suppliers and debtors if cash begins to get tight. All you’re doing here is digging yourself into a deeper hole. Remember what we said earlier: Look to trim non-essential costs first.


#5 Keep something aside for emergencies

When cash flow problems arise, you need some reserves to tide you over until things get back on track.

Where possible, businesses should avoid operating at 100% of their finances. Industry figures suggest setting aside at least two months of operating expenses to keep you afloat through dry patches, or when something unexpected pops up.

Being able to ride out a tough patch without having to go into external debt will be as good for your budget book as it will be for your morale. This is true whether it’s a bigger tax bill than expected, an accident that damages a vehicle, a series of sudden resignations, or any other [

If you’re especially organised, a contingency fund alongside your regular finances and emergency fund can give you even more flexibility.

#6 Check out business finance options

Sometimes the only way out of a rough patch is to borrow money to keep you afloat. If this is the case, you have tons of options. As well as traditional business loans where you borrow a lump sum and repay it over an agreed timeframe, there is a suite of bespoke funding solutions for small business. Each is tailored to specific situations, allowing you to get the funding you need in a way that doesn’t compromise your business.

One particularly relevant type of loan is asset finance, which unlocks the capital stored in high-value assets. If your business is asset-rich but cash-poor, asset finance could be the perfect option.

At The Funding Guru, we’ve built our reputation on matching businesses with the right funding solution for their needs. Our portfolio contains hundreds of satisfied business owners.

So if you find yourself looking at ways to improve cash flow, give us a call.


Picture of Bobby Turner

Bobby Turner

Marketing, SEO & Stats Lead Content Expert. 12 years working with B2B, e-commerce businesses. Bobby has written for numerous accounting, financial, hospitality, and fashion publications worldwide.

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