Even with great forecasting, your business may encounter unexpected expenses. From changes in weather to changes in laws to an international pandemic, you can’t plan for everything. Overspending on inventory that isn’t being sold fast enough can lead to cash flow problems. A U.S. Bank study reported that 82% of business failures are due to poor cash management. Lowering expenses is a relatively simple-sounding way to address cash flow problems in your business. Below is Walmart’s (WMT) cash flow statement for the fiscal year ending on Jan. 31, 2024.

• An emergency fund is a crucial safety net during uncertain times or when facing unexpected expenses.
• If your business credit is not good enough to get a business loan, personal loans for business purposes can be a good alternative.
• You should have a good idea of not only what money you have in the bank, but also what you can expect to come out of it, and what you can expect to come into it.
• Or if your sales are down for a month or two, you may struggle to make payroll.

To do this, make sure you locate the total cash inflow and the total cash outflow. While inventory is necessary for most businesses, having too much of it ties up your liquid cash and prevents you from investing in other areas of your business. Avoiding cash flow problems before they arise can keep your business running smoothly, even in uncertain times. A sophisticated cash forecasting the best way to avoid cash flow problems is solution should provide treasurers with a holistic view of their financial apparatus. There is a wide range of reasons why cash flow problems can arise, and understanding what they are is a key component in being able to deal with them. If you need to find quick and proven solutions to increase your liquidity, check out our article on improving your cash flow to get started.

Urge your customers to pay on time

As you monitor your finances, be aware of these seven common cash flow problems that can severely impact your business. Spend some time looking at your cash flow problems and solutions and consider finding ways to make things clearer so you have a better understanding of your cash flow at any given time. Consider new accounting software that can track net cash flow and many other factors related to your business’s financial standing. Explore plans to see the many ways QuickBooks can help you stay in control of your business finances. For small business success, examine your business plan, processes, operations, income, and expenses. If your business works on a per-project basis, use job costing to review your business’s profit and loss statements and margins.

The time to line up a line of credit or loan is often before you need it so it is available when you do. While her story may be fictional, the scenario she describes is all too common among small businesses. A recent survey from Inventory Planner found that 42% of small- to medium-sized retailers struggle with excess inventory. This can happen for various reasons, such as overestimating demand, ordering in bulk to get a discount, or offering too many product options. Check out our article, How to Create Cash Flow Projections, for a step-by-step guide to predicting how much cash you’ll have available each month.

Fix Your Cash Flow Issues

You can do this by analyzing the return on investment (ROI) you’re getting from things you’re paying for. Meanwhile, if you have a shortage regularly, you may need to take a more detailed look at your business income and expenses. “Scope creep” is when a project’s requirements unexpectedly change or increase over time. It’s an all-too-common phenomenon that isn’t necessarily bad, but you’ll want to be aware of it and manage it appropriately with clients.

Andrew received an M.B.A. from the University of California at Irvine, a Master of Studies in Law from the University of Southern California, and holds a California real estate broker license. A ROBS is a complex transaction that can result in fines and penalties if done incorrectly, so we recommend using the service of a ROBS provider like Guidant Financial to walk you through the process. The provider has comprehensive legal and audit support services as well as a satisfaction guarantee for its services. According to CB Insights, 38 percent of startups fail because they ran out of money and were unable to raise more capital. Old equipment not only takes up valuable space but is also inefficient.

How to solve cash flow problems

In the worst case, cash flow problems can lead to insolvency – the inability to pay creditors in line with established payment terms. This is a potentially existential business risk, and avoiding it should be a high priority for all businesses. But even lesser cash flow problems, like not having enough of a cash reserve to buy essential products or services, can have a drastic impact on the bottom line. On a fundamental level, cash flow problems occur when a business has too many expenses without enough revenue. Let’s explore some of the most common issues that can lead to cash flow problems and some potential solutions for solving them. You can reduce unnecessary business expenses, encourage faster repayment of accounts receivables, negotiate more flexible terms with vendors, and more.

“When asked what they need or what their numbers are, there isn’t a lot of clarity,” she warns. If you don’t have financial systems and strategies in place to accomplish these tasks, you may find your business facing cash flow issues. But, thankfully, there are ways to resolve issues so your business can stay in control and on the path to lasting success.